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Author: 


Fernley,  Thomas  A 


Title: 


Price  maintenance 


Place: 


Philadelphia 

Date: 

1912 


^5'  Fa -62 U '3 


COLUMBIA  UNIVERSITY  LIBRARIES 
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ORIGINAL  MATERIAL  AS  FILMED  -    EXISTING  BIBLIOGRAPHIC  RECORD 


257.52 


Pernley,  Thomas  A. 

Price  maintenance,  by  Thomas  A.  Fernley.    Philadel- 
phia, The  Commerce  publishing  company,  1912. 

311  p.  incl.  front,    plates.    23i"".       §2.00  ] 


1.  Prices.    2._Business. 
Library  of  Congress 
Copy  2. 


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PRICE    MAINTENANCE 


BY 


THOMAS  A.   FERNLEY 


1912 

PHILADELPHIA 
THE  COMMERCE  PUBLISHING  COMPANY 


\ 


HI 


Copyright,  1912, 
BY  THOMAS  A.  FERNLEY. 


Published  December,  1912. 


3 


T33 


Press  of  LYON  &  ARMOR 
Philadelphia 


To  My  Father 

T.  JAMES  FERNLEY 

Pioneer  and  Pathfinder  in  the  work  of  correcting 

unprofitable  conditions  in  business 

This  Book 

IS  Gratefully  Dedicated. 


•. 


11 


1 


FOREWORD 


From  manufacturers  and  merchants  in  every 
line  of  business,  there  arises  a  bitter  cry  complaininjr 
of  the  lack  of  profits;  of  the  great  amount  of  brain 
energy,  labor  and  capital  required  by  their  businesses 
with  but  a  meagre  return. 

This  book  does  not  purport  to  be  a  Moses  to  lead 
business  men  out  of  the  wilderness,  but  from  the  facts 
herein  set  forth  and  the  remedies  suggested,  which 
are  gleaned  from  many  sources,  it  is  hoped  that  there 
will  be  gathered  much  of  helpful  and  strengthening 
character. 

I  was  surprised  and  touched  by  the  reception 
given  my  earlier  treatises  on  business  subjects;  and 
had  no  idea  that  they  would  prove  of  interest  or  benefit 
beyond  the  immediate  "circle"  of  the  members  of  the 
National  Supply  and  Machinery  Dealers'  Association, 
for  whom  they  were  prepared. 

Upon  repeated  requests,  I  have  been  prompted  to 
publish  this  book  embodying  in  permanent  form  a 
larger  work  treating  of  the  same  subjects  for  a  broader 
clientele. 

I  acknowledge  with  grateful  thanks  the  assistance 
of  Mr.  George  T.  Mcintosh,  in  connection  with  the 


I 


i 


FOREWORD— Continued 

preparation  of  Part  IV,  relating  to  the  Compensation 
OF  Salesmen,  and  others  who  have  contributed  valu- 
able  data  which  has  aided  greatly  in  the  preparation 
of  this  work. 

With  this  explanation,  gentle  reader,  I  wish  to 
thank  you  and  retire,  hoping  shortly  that  we  meet 
again,  and  be  so  fortunate  as  to  labor  under  more 
satisfactory  conditions,  which  shall  have  been  created 
by  the  universal  adoption  of  a  higher  standard  of 
business  methods. 


Thomas  A.  Fernley. 


Philadelphia, 
October,  1912. 


Chapter. 

I. 

II. 

III. 

IV. 
V. 
VI. 
VII. 
VIII. 
IX. 
X. 
XI. 
XII. 
XIII. 
XIV. 
XV. 
XVI. 
XVII. 
XVIII. 
XIX. 
XX. 
XXI. 
XXII. 
Appendix. 


CONTENTS 


PART  ONE. 

Price  Maintenance. 

Changed  Conditions 17 

Competition 25- 

Vindictive  Competition 44 

Unintelligent  Competition 5& 

Cause  and  Effect 62 

Salesmen 74 

Buyers go 

Leaders 93^ 

Sources  of  Loss 97 

Overproduction 102 

Over  Stock 105. 

Selling  on  Approval no 

Foolish  Selling ng 

The  Sales  Manager 115 

A  Fair  Price 12*^^ 

Co-operation 132 

Resale  Prices X54 

Patented  Articles igg 

Unpatented  Articles 172 

Methods  of  Resale igl 

Loyalty 137 

Benefits  of  Resale 193 

The  Law  at  Home  and  Abroad 19^ 


] 


CONTENTS— Continued 

PART   TWO. 

COST  OF  Doing  Business 214 

PART  THREE. 

The  Right  Way  to  Figure  Profits 253 

part  four. 
Compensation  of  Salesmen 275 

part  five. 

The  Middle-Man  as  an  Economical  Medium  of 
Distribution ^^^ 


ILLUSTRATIONS 


WHY  WAS  HE  FOOL  ENOUGH  TO  WORK  AT  NO 

PROFIT  ? Frontispiece. 

HE    HATES   TO   STUDY   THE   BOOKS  AND   FACE   THE    "^^ 
TRUTH    50 

WILL  THE  STOCKHOLDERS  ACCEPT  THE  EXPLANA- 
TION?      146 

UNJUST  CLAIMS,  UNEXPECTED  LOSSES,  OR  DEPRECI- 
ATION, WOULD  SOON  WIPE  OUT  SUCH  A  NARROW 
MARGIN    214 

A  STRIKING  SIMILARITY 24& 

ah!  he  does  not  MAKE  A  CENT!! 25S 


f 


PART  I 


PRICE  MAINTENANCE 


, 


PRICE  MAINTENANCE 


CHAPTER  I 

CHANGED  CONDITIONS. 

There  have  been  many  factors  which  have  con- 
tributed to  render  modem  business  conditions  most 
complex,  and  unfortunately  the  changes  have  been 
wrought  so  rapidly  that  business  men  have  not  fully 
realized  and  adjusted  themselves  to  them. 

Conditions  during  the  past  fifty  years  have 
changed  to  a  greater  extent  than  possibly  was  the  case 
m  any  fifty  years  previous. 

Steam  and  electricity  have  annihilated  distance, 
bringing  the  people  of  the  world  face  to  face  with  one 
another,  and  therefore,   face  to  face 
with  entirely  new  problems  in  com- 
mercial affairs.  -    ^,  ^"*°" 

Contributing  to 

1  lie  inventor  has  been  most  active  ^^  Conditions 
and  successful  in  steam  and  electrical 
lines,  and  also  in  connection  with  the  improvement  of 
the  printing  press  and  other  machinery  for  the  dupli- 
cation of  messages  and  information. 

««  ^".'^  ^°^^^^  ^^^*^"  ^^^  increased  its  business  some 
fifty-fold  in  the  past  60  years,  showing  the  fact  that 
information  of  every  character  has  been  given  broad- 
cast distribution. 

17 


Modem 

Inventions  and 
Their  Effect  on 
Business. 


PRICE    MAINTENANCE 

Offices  of  the  business  houses  today  are  entirely 
unlike  the  offices  of  the  same  houses  fifty  years  back. 

Then  it  was  the  custom  to  laboriously  pen  a  com- 
munication which  would  take  days  or  weeks  to  reach 
the  person  addressed. 

The  methods  for  inter-communication  were  most 
cumbersome  and  consequently  business  was  done  on  an 
entirely  different  basis  than  it  is  today. 

We  now  find  in  offices  large  corps  of  stenographers 
and  typewriters  as  well  as  machinery  for  recording 
the  human  voice  on  phonograph  records,  in  turn  to  be 

rapidly  transcribed  on  typewriting  or 
duplicating  machines. 

We  have  addressing  machines  so 
that  thousands  of  copies  of  quotations 
or  letters  to  customers  may  be  rapidly 
addressed.  All  these  modern  contrivances  have  served 
to  make  it  easy  to  have  quotations  and  communications 
prepared,  mailed  and  delivered  in  a  remarkably  short 
space  of  time. 

The  complete  development  of  the  telegraph  system 
and  the  universal  use  of  the  telephone  renders  inter- 
communication by  written  or  spoken  message,  a  most 
-easy  proposition,  so  that  where  merchandising  was 
done,  figuratively  speaking,  on  a  canal  boat  basis  in 
the  beginning  of  the  nineteenth  century,  it  is  now  done 
as  if  by  limited  express  throughout  the  entire  world. 

In  these  years,  of  a  half  century  ago,  business 
was  done  on  large  comfortable  margins  and  the  ques- 
tion of  Profits  was  not  of  such  extreme  importance 
as  it  is  today. 

Also,  the  increasing  cost  of  selling  a  given  amount 

18 


Increased  Oost 
of  Distribution 


CHANGED    CONDITIONS 

of  goods  has  forced  business  men  to  look  into  the  mat- 
ter  of  profits  very  thoroughly,  and,  if  possible,  to  find 
some  remedy  for  the  present  conditions,  although  it  is 
admitted  that  many  do  not  understand  the  full  signifi- 
cance of  the  question. 

The  increase  in  cost  of  distribution  seems  to  be 

partly  explained  by  reason  of  the  decrease  in  values 

durmg  the  past  decades.    It  is   now 

necessary   to    sell    almost    double   the 

quantity  of  merchandise  to  equal  the 

sales  of  twenty-five  years  ago. 

In  speaking  of  this  phase  of  the 

question,  a  jobber  recently  said  : 

"Twenty  years  ago  we  sold  a  bill  of  goods  to  a  Wis- 
consin customer;  the  bill  amounted  to  $546.01.    This 

month  we  took  the  trouble  to  extend 

that  same  bill  at  prices  now  ruling, 

and  found  that  at  this  time  it  would 
only    amount    to    $359.17.      In    other 
words,    the    same    goods    are    worth 
30%   less  today  than  they  were  twenty  years  ago. 
To    carry    this    illustration    further,    we    will    say 
that    twenty    years    ago    the    profit    on    the    goods 
was  only  10%,  which  would  be  about  $54.60.    We 
will    say   that   the    entire    expense    of   doing   busi- 
ness,   including  travelers,   store   expense,   etc.,   was 
71/2%,  or  $40.95;  this  would  leave  a  net  profit  of 
$13.65   on  the  bill.    Today  the  expense  in   dollars 
and  cents  would  be  precisely  the  same;  and  esti- 
matmg  the  profit  at  the  same  percentage,  we  have 
a  profit  of  $35.91,  while  the  expense  remains  at  $40.95. 
"The  same  bill  which  twenty  years  ago  shows  a 

19 


Lower  Values  or 
Bange  of  Pricei 


«0i 


t 


I 


II 


PRICE    MAINTENANCE 

profit  of  $13.65  would  today,  therefore,  show  a  loss.  Of 
course,  we  have  taken  the  rate  of  profit  at  a  nominal 
figure  in  both  cases,  so  as  to  show  the  workings  of 
the  plan,  but  the  situation  is  even  worse  than  it  ap- 
pears, for  today,  owing  to  the  increased  traveling 
competition,  this  customer  would  not  buy  a  bill  of  this 
size  from  one  jobber,  but  would  divide  it  among 
several,  while  this  smaller  quantity  of  goods  would  be 
sold  on  a  closer  percentage  of  profit." 

In  fact,  investigation  among  wholesalers  in  many 
varying  lines  indicates  that  orders  now  average  in 
value  but  $20.00  or  $30.00,  where  thirty  years  ago  the 
average  order  in  such  lines  was  nearer  $100.00. 

Among  other  causes  of  increased  expenses  we  find 
that  with  an  increase  in  population,  the  number  of 

distributors  increases  sometimes  to  a 
greater  extent  than  seems  necessary  to 
supply  the  demands  of  the  trade. 

There  were  not  as  great  a  number 
of  merchants  in  business  as  there  are 
today,  in  fact,  as  the  records  show,  the  growth  of  the 
number  of  manufacturers  and  merchants  has  increased 
all  out  of  proportion  with  the  increase  in  population. 
The  number  of  manufacturers,  wholesalers  and 
retailers  in  many  lines,  has  vastly  increased.  For 
instance,  with  a  100%  increase  in  population,  there 
has  been  a  200%  increase  in  the  number  of  manu- 
facturers, wholesale  and  retail  distributors  of  almost 
every  line  of  merchandise. 

Another  feature  which  has  resulted  in  smaller 
orders  and  greater  expenses  is  the  over-solicitation  of 
the  trade  both  by  manufacturers  and  jobbers.    Fre- 

20 


Cause  for 

Increased 

Expenses 


„ 


CHANGED    CONDITIONS 

quently  wholesalers  and  retailers  whose  purchasing 
powers  are  limited  in  certain  lines,  and  who  are  located 
in  towns  expensive  to  reach,  are  solicited  by  ten  or 
twelve  traveling  salesmen  offering  the  same  or  similar 
goods. 

Further,  improved  transportation  facilities,  local 
steam  and  trolley  freight  have  made  frequent  small 
shipments  possible  and  profitable. 

The  general  parcels  now  operating  at  low  rates 
in  this  country  is  doing  its  part  in  decreasing  the  size 
of  orders,  thus  increasing  overhead  expenses. 

As  a  result,  the  average  value  or  amount  of  the 
individual  order  decreases,  with  a  consequent  increase 
in  cost  of  handling, .  making  necessary  a  more  ex- 
pensive organization  to  conduct  the  business. 

The  publication  of  expensive  catalogs  represents 
a  development  of  recent  years,  which  has  added  con- 
siderably  to  the  expense  account,  as  have  also  other 
modern  advertising  items  which  are  generously  pro- 
vided for  the  benefit  of  the  trade. 

Again,  the  much-talked-of  higher  cost  of  living 
through  general  advance  of  prices  in  food-stuffs  and 
other  commodities  of  life  has  resulted  in  a  necessary 
advance  in  the  scale  of  salaries  and  wages  paid  to  aU 
classes  of  help.  It  has  also  caused  larger  daily  ex- 
pense accounts  of  traveling  salesmen  through  advanced 
hotel  rates  and  higher  prices  for  livery  and  automobile 
hire  for  reaching  towns  far  removed  from  the  rail- 
roads. 

Senator  Lodge,  Chairman  of  the  Committee  ap- 
pointed by  Congress  to  investigate  the  causes  of  the 

21 


■  1 


High  Cost  of 
Living 


PRICE     MAINTENANCE 

higher  cost  of  living,  cited,  among  other  causes,  the 
following  as  the  most  marked  ; 

"Increased  cost  of  production  of  farm  products, 
by  reason  of  higher  land  values  and  higher  wages. 

"Increased  demand  for  farm  products  and  food. 

"Shifting  of  population  from  food-producing  to 
food-consuming  occupations  and  locali- 
ties. 

"Reduced  fertility  of  land,  result- 
ing in  lower  average  production  or  in 
increased  expenditures  for  fertilization. 
"Increased  banking  facilities  in  agricultural  local- 
ities, which  enable  farmers  to  hold  their  crops  and 
market  them  to  best  advantage. . 

"Reduced  supply  convenient  to  transportation 
facilities  of  such  commodities  as  timber. 

"Cold  storage  plants,  which  result  in  preventing 
fluctuations  of  prices  of  certain  commodities  with  the 
seasons,  but,  enabling  the  wholesalers  to  buy  and  sell 
at  the  best  possible  advantage,  tend  to  advance  prices. 

"Increased  cost  of  distribution. 

"Industrial  combination. 

"Organization  of  producers  or  of  dealers. 

"Advertising. 

"Increased  money  supply. 

"Over-capitalization. 

"Higher  standard  of  living." 

It  is  interesting  to  note  that  this  Congressional 
Committee  has  recognized  as  one  contributory  cause 
the  Increased  Cost  of  Distribution. 

The  increased  value  of  realty  in  the  central  and 

22 


CHANGED    CONDITIONS 

business  districts  of  our  large  cities  has  forced  whole- 
salers generally  to  pay  rents  far  greater  than  in  former 
years. 

This,  of  course,  means  additional  selling  expenses, 
hence  the  increased  proportion  of  expense  to  gross 
sales. 

When  the  house  is  young  the  expenses  are  at  a 
minimum,  partners  probably  doing  a  large  portion  of 
the  work.  As  time  goes  on,  the  neces- 
sity for  more  help  comes,  and  the  old  ^ge  BringB 
employees  are  constantly  looking  for  increased 
and  receiving  increased  salaries.  Such  Expense  Account 
a  condition  is  apparent  in  many  houses, 
and  any  attempt  to  "prune  off  dead  wood"  would  be 
very  difficult  and  would  work  an  injustice  to  those 
who  have  given  their  best  years  of  loyal  service  to 
the  house. 

The  service  required  by  the  trade  today,  includ- 
ing all  these  modern  conveniences  and  with  all  mod- 
ern facilities  for  the  conduct  of  business,  is  far  more 
exacting  than  formerly. 

A  more  expensive  organization  is  required  from 
the  bottom  to  the  top  of  the  house.     Facilities  and 
practices   once    considered    ample   are 
now  antiquated  and  out  of  date. 

Better    packages    are    demanded; 
better  shipments  are  looked  for,  and 
frequent  small  orders  take  the  place  of 
periodical  large  orders,  heavily  increasing  the  cost  of 
securing  and  handling  business. 

Advertising,  in  all  its  different  forms,  on  a  liberal 
scale,  is  required  and  expensive  selling  helps  in  the 

23 


Service  More 
Expensive 


« 


I 


PRICE    MAINTENANCE 

way  of  high  grade  printed  matter,  demonstrators,  etc., 
are  furnished  the  trade  gratis. 

Therefore,  we  face  an  ever  increasing  expense 
account  and  a  vanishing  profit  account,  which  re- 
quires  that  the  question  of  the  maintenance  of  a  fair 
scale  of  prices  should  be  very  thoroughly  considered 
and  conditions  should  be  studied  so  that  it  would  be 
possible  to  handle  them  in  a  manner  which  will  meet 
the  present  situation  properly. 


24 


Profits  an  Issua 
of  the  Day 


CHAPTER  II. 

COMPETITION. 

Now,  in  order  to  meet  these  increased  expenses, 
the  margin  of  profit  must  not  be  reduced,  but  on  the 
contrary,  a  larger  margin  of  profit  is  imperative. 

Under  these  conditions,  the  question  of  Profits 
has  become,  to  the  business  world,  an  issue  of  the  day. 

It  has  been  perhaps  the  subject  of 
more  serious  careful  consideration,  by 
manufacturers  and  merchants,  during 
the  last  decade,  than  any  other  topic. 

In  the  following  pages  it  has  been 
endeavored  to  learn  what  landmarks  have  been 
set  up  and  to  discover  how  much  could  be  found  out 
regarding  a  matter  so  important  as  the  Maintenance 
OF  A  FAIR  SCALE  OF  PRICES,  in  the  hope  that  business 
men  could  profit  by  such  information  and  that  this 
means  would  be  found  less  costly  and  more  pleasant 
than  the  severe  teachings  of  experience  with  its 
consequent  loss  of  time  and  money. 

The  causes  contributing  to  unprofitable  conditions 
in  connection  with  the  sale  of  merchandise  are  many 
and  varied.  They  are  interwoven  and  involved  in  one 
another  so  that  they  are  difficult  of  classification,  but 
it  may  be  well  to  consider  a  few  of  the  causes  and  to 
mention  remedies  which  it  is  possible  to  apply. 

One  of  the  most  prolific  causes  of  cut  prices  is  a 

25 


I  ill 


f 


il 


PRICE    MAINTENANCE 

misconception  of  what  competition  really  is,  and  of 
how  it  should  be  conducted. 


Definition  of  Competition. 

Competition  may  be  defined  for  the  purposes  of 
this  discussion  a  contest  in  which  two  or  more  are 
striving  for  the  same  object,  which  only  one  can 
possess ;  a  contest  where  two  or  more  are  striving  to 
increase  their  share  of  things  desirable. 

In  the  business  world  this  object  or  desirable 
thing  takes  the  form  of  a  coveted  order,  or  the  trade 
of  a  particular  person,  company  or  community. 

Competition  makes  life  worth  while  by  adding 
zest,  spice  and  spirit  to  our  daily  tasks.    It  gives  us 

an  incentive  to  make  better  goods  and 
to  conduct  business  along  more  pro- 
gressive and  enterprising  lines  than  do 
our  fellows.  It  gives  us  ample  oppor- 
tunity to  prove  our  ability  and  leader- 
ship. Competition  is  a  great  balance  wheel— it  pre- 
serves  the  equation  of  supply  and  demand;  it  keeps 
the  quality  good  and  the  supply  abundant  and  accessi- 
ble. Competition  is  the  very  essence  of  business 
activity  and  is  necessary  for  our  continued  progress 
and  advancement. 

Concretely,  let  us  see  what  competition  has  done 
for  us ;  for  all  must  realize  the  important  part  which 
competition  has  played  in  our  daily  life.  We  all  know 
that  it  is  responsible  for  the  high  grade  of  civilization 

26 


Functions  of 
Competition 


. 


I 


The  Benefits  of 
Competition 


Competition 
Essential 


COMPETITION 

which  pervades  the  world  today;  for  the  development 
of  our  country  and  of  the  cities,  as  well 
as  the  great  advancement  in  the  arts 
and  sciences.  In  fact,  throughout  the 
entire  field  of  human  activity,  the  whole- 
some effect  of  competition  has  been  felt 
and  its  beneficial  results  are  everywhere  apparent. 

We  all  know  that  competition  makes  better  men 
of  us  and  keeps  us  keyed  up  to  the  highest  pitch,  de- 
veloping the  highest  standard  of  effi- 
ciency. How  could  we,  ourselves,  be 
endured  if  we  had  an  exaggerated  idea 
of  our  own  importance  and  if  we  felt 
that  we  were  beyond  competition  and 
could  not  be  replaced.  It  is  safe  to  venture  the  opinion 
that  life  would  be  unendurable  for  those  about  us  un- 
der  such  conditions. 

In  the  business  world,  competition  has  given  us 
the  superb  passenger  traffic  service  on  the  railroads 
of  America  to-day,  with  speedy  trains  affording  every 
convenience  and  luxury. 

What  a  contrast  is  presented  by  the  service  of  the 
government  owned  railroads  in  European  countries 
where  competition  does  not  exist,  and  where  the  stand- 
ard of  service  is  as  low  as  it  is  high  in  this  country. 

Competition  has  resulted  in  the  making  of  better 
grades  of  goods  by  manufacturers;  of  the  designing 
of  better  patterns ;  of  a  great  improvement  in  the  finish 
and  color  of  many  lines  of  goods,  and  of  the  develop- 
ment  of  a  higher  standard  of  quality  in  manufactured 
products. 

27 


Progressive 
Competition 


PRICE    MAINTENANCE 

It  has  resulted  in  making  the  service  of  manu- 
facturers and  merchants  the  acme  of  perfection,  and, 

in  placing  the  distributing  agencies  of 
the  country  in  the  finest  physical  condi- 
tion, to  serve  the  trade  to  the  best  possi- 
ble advantage. 

There  is  also  a  benefit  derived  from 
competition  which  is  not  so  obvious  as  other  benefits, 
and  that  is  the  elimination  of  those  unfit  from  positions 
of  superintendence. 

It  is  freely  admitted  today  that  there  are  many 
men  occupying  positions  of  management  in  business, 
who  would  be  far  better  off  were  they  under  the  direc- 
tion of  others  who  are  more  competent. 

It  is  also  well  known  that  there  are  always  hang- 
ing on  the  outskirts  of  business,  these  incapable  men 
who  are  pestering  and  impeding  the  rest  of  the  world 
with  poor  goods,  poor  service,  cut  price  methods  and 
other  business  practices  which  are  most  harmful. 

The  elimination  of  such  unfair  competitors  and  the 
ensuing  confinement  of  business  to  the  more  capable, 

is  a  good  service  to  the  community.  It 
is  also  a  good  service  to  the  eliminated 
men  who  are  placed  under  the  guidance 
of  the  more  capable,  and  are  not  forced 
to  longer  endure  the  responsibilities, 
anxieties  and  privations  inseparable  from  attempting 
the  discharge  of  duties  beyond  them. 

The  conduct  of  business  by  capable  men — ^men 
who  know  enough  to  sell  for  a  profit,  and  to  sell  only 
a  good  quality  of  merchandise — makes  possible  the 
payment  of  a  fairer  scale  of  wages  and  gives  the 

28 


EUmination  of 
Incapable  Men 


Cliaracter  of 

Competition 

Dependent  on 

Personality^ 


COMPETITION 

public  the  opportunity  of  buying  better  goods  than 
formerly. 

Various  Kinds  of  Competition. 

Now,  as  to  the  character  of  competition  in  the 
business  world.     This  depends  very  largely  on  the 
individual  personality  of  those  engaged 
in  the  various  lines  of  business.     It  is 
impossible  to  separate  the  private  tem- 
perament which  characterizes  the  indi- 
vidual in  private  life  from  the  tempera- 
ment and  standard  of  conduct  of  the  same  individual 
when  engaged  in  business. 

If  the  person  be  far-sighted,  broad-minded,  intelli^ 
gent,  fairly  disposed  and  is  not  obsessed  with  the  idea 
that  he  wants  the  whole  earth,  his  competition  will  be 

FAIR. 

Looking  at  the  reverse  side  of  the  shield,  however, 
if  the  person  is  narrow-minded,  short-sighted,  ignor- 
ant, suspicious  of  others  and  disposed  to  watch  his. 
opportunity  to  take  unfair  advantage;  if  he  is  revenge- 
ful and  has  a  tendency  to  be  satisfied  with  nothing  less 
than  the  entire  earth  for  himself,  he  will  be  a  vicious 
competitor  and  his  competition  will  be  of  a  most 
UNFAIR  character. 

It  is  small  wonder  that  prices  have  been  cut  on 
many  lines  of  goods  to  a  point  where  there  is  no 
profit  in  them,  when  we  consider  the  fact  that  competi- 
tion among  manufacturers  and  merchants  has  in  most 
cases  been  absolutely  unrestrained. 

Among  the  hundreds  or  thousands  of  merchants 

29 


PRICE    MAINTENANCE 

handling  similar  lines  of  goods,  it  is  but  natural  that 
there  should  be  those  who  pursue  unbusinesslike 
tactics,  and  their  actions  to  a  certain  degree  affect  the 
actions  of  all  the  others. 

At  first  possibly  all  try  to  get  a  fair  profit,  but 
Tight  here,  we  have  the  opinions  of  all  these  thousands 
of  men,  more  or  less  intelligent  or  well  informed,  good 
merchants  and  poor  merchants,  as  to  what  constitutes 
a  fair  profit. 

Then,  with  the  strife  for  business,  even  the  prices 
iirst  made  are  reduced  and  they  are  absolutely  at  the 
mercy  of  every  one  who  chooses  to  make  a  football  of 
them. 

This  fact,  coupled  with  the  natural  aggressive  and 
Tarying  temperament  of  men,  seems  to  furnish  the 
cause  for  the  various  kinds  of  competition,  which  may 
be  broadly  defined  as  fair  and  unfair. 

The  character  of  competition  to  be  commended  is 
that  which  results  in  economized  production,  faithful 

and   efficient  service,   high   quality  of 
goods,  fair  prices  and  reasonable  and 
truthful  publicity.    This  competition  is 
simply  incidental  to  each  man's  doing 
his  best  for  himself,  but,  beyond  this 
point,  it  begins  to  mean  each  man  doing  his  worst  for 
his  neighbor  and  the  meanest  fellow  of  them  all  set- 
ting the  pace. 

The  combat  for  business  should  be  conducted  ac- 
cording to  the  rules  of  honor,  and  not  by  covert  practice 
of  treachery,  dishonesty  and  deceit.  A  steam  roller 
in  a  rose  garden  is  no  more  out  of  place  than  a  pig  or 
pirate  in  the  fair  field  of  merchandise. 

30 


Talr 
Competition 


COMPETITION 


To  be  fair,  competition  need  not  be  less  active,  but 
it  must  be  less  bitter  and  less  senseless.  It  should  be 
the  aim  of  one  in  business  not  to  talk  any  other  than 
his  own  goods;  to  be  acquainted  with  no  other  than 
the  buyer,  to  refrain  at  all  times  from  speaking  ill  of 
a  competitor;  of  his  ability,  his  facilities,  his  manner 
of  conducting  business,  his  goods  or  his  credit. 

What,  therefore,  is  a  fair,  equitable  basis  on 
which  to  found  a  policy  along  the  lines  of  which 
business  may  be  operated? 

What  must  be  done  to  win  and  hold  customers? 

Will  not  a  policy  like  the  following  prevail? 

Offer  to  your  customers  the  advantages  of  deal- 
ing with  a  house  which  will  at  all  times  maintain  a 
high  standard  of  quality  in  their  manu- 
factured products.  Offer  them  prompt 
and  correct  service;  show  them  that 
they  will  at  all  times  be  treated  with 
uniform  courtesy,  honesty  and  fairness. 
Display  a  pleasing,  enthusiastic  personality  and  an 
accommodating  disposition,  coupled  with  an  ability 
and  a  readiness  to  serve  with  intelligence,  and  at  all 
times  make  it  clear  that  your  prices  are  uniformly 
right  and  as  low  as  is  consistent  with  good  quality  and 
efficient  service. 

Is  not  this,  then,  the  basis  of  fair  competition? 

Operating  under  such  a  policy,  the  preliminary 
work  will  closely  resemble  the  slow  and  tedious  work 
of  preparing  for  and  laying  the  foundation  of  one  of 
our  large  sky  scrapers. 

Likewise,  the  work  of  building  a  business  based 

31 


A  Good  Policy 
to  FoUow 


w 


PRICE     MAINTENANCE 

on  fair  competition  will  undoubtedly  be  slow  and  per- 
haps troublesome,  but  the  foundation 
Slow  But  Sure  ^^^^  ^®  strong  enough  to  bear  the 
Success  Based  on  Weight  of  the  largest  business  and  am- 
Fair  Competition   pie  enough  to  weather  the  stress  and 

storms  of  bad  times,  broken  contracts, 
unfilled  engagements,  dishonest  practices,  bankruptcy 
and  prices  broken  by  forced  sales  on  the  part  of  insane 
and  unfair  competition. 

The  house  which  is  builded  on  such  a  strong 
foundation  will  endure  and  prosper  years  after  the 
house  indulging  in  unfair  competition  has  been  gone 
and  forgotten. 

Competition  in  which  the  contestants  attempt  to 
secure  business  with  due  respect  to  honorable  business 
methods  and  without  chicane,  dishonesty  and  covert 
practices,  can  be,  and  is  being  carried  on  by  thousands 
of  business  houses. 

In  some  connections,  when  competition  has  been 
discussed,  there  has  often  been  raised  the  question  of 
the  small  men  and  the  big  men  in  business. 

A  merchant  who  does  a  large  business  recently 
remarked  that  the  big  men  in  business  today  were 
not  necessarily  those  who  had  the  largest  establish- 
ments and  who  did  the  greatest  amount  of  business. 

He  maintained,  that  the  big  men  in  business  today, 
were  the  men  who  showed  by  their  actions  that  they 

were  in  business  to  make  a  living  profit ; 
that  they  were  above  "gum-shoe" 
methods,  secret  rebates  and  under- 
handed dealings  of  all  kinds,  and  who 
made  it  a  practice  not  to  hold  malice 

32 


The* 'Big"  Men 
Are  the 
Fair  Ones 


COMPETITION 

against  their  competitors  who  admitted  weakness  by 
persistently  underselling. 

He  added  that  the  small  men  were  those  wha 
demonstrated  by  their  actions  that  they  were  not  in 
business  to  make  a  living.  The  small  men  were  those 
who  resorted  to  all  kinds  of  unfair  competition,  and 
whose  object  was  apparently  the  dissipation  of  their 
assets. 

These,  he  claimed,  were  the  small  men,  even 
though  they  might  operate  the  largest  businesses. 

Of  course,  to  secure  business  and  to  maintain  a 

good  volume  by  fair  means  in  the  face  of  competition 

^  with  others  who  may  possibly  not  be  inspired  by  such 

a  spirit  of  fairness,  is  a  problem  the  solution  of  which 

is  by  no  means  easy. 

Every  business  man  feels  that  there  is  a  certain 
volume  of  business  to  which  he  is  rightfully  entitled. 
Some  of  them  appear  to  feel  that  they  are  entitled  to 
much  beyond  this,  and  then  it  is  that  the  trouble 
begins. 

Ambition  to  increase  the  volume  of  business  is 
commendable,  but  the  methods  pursued  to  accomplish 
the  desired  end  should  be  strictly  hon- 
orable and  above  criticism. 

In  a  lecture  on  "The  Future  of 
Capitalism  in  a  Democracy,"  recently 
delivered  before  the  students  at  Kenyon 
College,  Dr.  Charles  W.  Eliot,  President  Emeritus  of 
Harvard  College,  said: 

"The  democratic  doctrine  that  neither  capital  or 
labor  should  seek  monopolies  involves  the  mainten- 
ance of  competition ;  but  the  democracy,  while  recog- 

33 


Unfair 
Competition 


I 


V  i 


Competition 
Without  Limit 
Undesirable 


PRICE     MAINTENANCE 

nizing  that  competition  is  indispensible  to  progress  in 

education,  in  industries  and  in  commerce,  does  not 

believe  in  competition  without  limit. 

"It  distrusts  the  competition  which  is  pressed  to 

the  abandonment  of  profit.  It  perceives  that  the  com- 
petition which  is  essential  to  freedom 
and  progress  may  be  maintained  with- 
out hostility  to  competitors  or  destruct- 
iveness. 

"As  the  President  of  the  United 
States  Steel  Corporation  expressed  it  recently,  at  a 
dinner  given  by  an  association  of  cc-operating  and 
competing  companies  or  establishments  in  the  iron  and 
steel  industries  : 

"  'You  believe  in  competition,  but  not  in  hostility ; 
in  rivalry,  but  not  in  antagonism;  in  progress  and  suc- 
cess for  all,  but  not  in  the  punishment  or  destruction 
of  any.' 

"This  recognition  by  capital  of  the  true  demo- 
cratic doctrine  of  competition  over  and  against  monop- 
oly is  a  striking  manifestation  of  the  effects  of 
democracy  on  capitalism." 

Aside  from  all  ethical  ideals,  the  fact  stands  out 
in  bold  relief  that  the  policy  of  honesty,  fairness  and 
square  dealing  in  business  produces  greater  pecuniary 
benefits  than  any  other  policy. 

Said  Mr.  Henry  Holt,  the  prominent  New  York  pub- 
lisher, in  an  address  at  Yale  University : 

"We  are,  in  the  business  world,  losing  that  dis- 
creditable admiration  for  'smartness'— that  cheap 
combination  of  shrewdness  and  guile  which  in  years 
past  we  so  highly  esteemed. 

34 


i 


It 


1 


A  Lessened 

Admiration  for 

Mere  Smartness 


COMPETITION 

"We  are  losing  our  regard  for  it,  because,  as  we 
take  longer  views  of  business,  as  we  consider  it  more 
as  a  permanent  occupation  rather  than 
a  temporary  and   changing  condition, 
the   cheap   shrewdness   of   commercial 
trickery  proves  itself  a  failure. 

"In  the  broader  view  which  men 
are  taking  today,  business  loses  rank  as  an  end,  and 
becomes  a  means  to  an  end— a  means  for  making  a 
livelihood,  a  field  of  wholesome  endeavor,  and  a  school 
for  the  development  of  character  and  mental  vigor. 

"In  the  professions,  something  more  than  money  is 
essential  to  professional  eminence. 

"There  are  rich  shysters,  and  rich  quacks,  but  we 
do  not  commonly  call  them  successful.  We  withhold 
the  word,  because  success  in  the  profession  implies 
observance  of  the  set  standards  of  professional  con- 
duct. 

"In  the  same  way,  standards  of  business  morality 
are  being  set  up  in  the  commercial  world,  indirectly 
perhaps,  and  often  almost  unconscious- 
ly through  trade  associations  and  the 
frequent  meetings  of  merchants  for  the 
exchange  of  views  and  experiences. 

"A   business   house   has   today   a 
much  more  definite  relation  to  the  rest  of  the  trade 
than  formerly. 

"Just  as  the  rich  quack,  or  the  rich  shyster  lacks 
a  subtle  something  which  makes  success,  something 
which  robs  him  of  joy  in  his  work,  so  the  merchant  or 
the  producer  who  merely  makes  money,  loses  and,  what 

35 


a  Higher 

Standard  of 

Business 

Methods 


PRICE     MAINTENANCE 

is  more,  feels  that  he  has  lost  something  essential  when 
his  practices  have  got  him  a  bad  name  in  the  trade. 

"How  much  oftener  now  than  formerly  we  hear 
used  phrases  which  mean  moral  standards  in  the  busi- 
ness world,  phrases  cast  off  carelessly  in  conversation 
on  business  topics,  as  for  instance,  *So  and  so-old  house, 
high  class  concern;  so  and  so,  big  house,  but  a  bad 
name  in  the  trade.* 

"These  simple  phrases,  as  merchants  use  them, 
mean  much,  for  they  indicate  the  development  of 
higher  commercial  standards  for  success." 

Valuable  assistance  to  clearness  of  vision  on  the 
part  of  the  business  man  may  be  obtained  from  an 
endeavor  to  answer  the  question :  What  would  be  the 
result  if  every  business  house  on  this  territory  were 
to  pursue  this  same  line  of  action  as  I  now  pursue, 
cutting  prices,  and  using  methods  which  give  me  an 
unfair  advantage? 

If  the  answer  be  "demoralized,  unprofitable  con- 
ditions," its  unfair  immoral  aspect  will  thereby  be 
clearly  defined. 

Therefore,  it  is  quite  apparent  that  it  is  essential 
to  bring  about  a  standardization  of  business  conduct, 
so  that  the  methods  governing  the  rapid  exchange  of 
commodities,  services  and  money — ^the  bicsiness  moral- 
ity involved — may  be  as  reliable  as  the  grades  of  mer- 
chandise with  which  it  deals. 

What  does  this  mean? 

It  means  that  a  fixed  and  undeviating  standard 
of  commercial  ethics  has,  and  will  have,  a  potent  in- 
fluence in  furthering  the  economical  development  of 
business;  and  that  therefore  anything  that  business 

36 


COMPETITION 

men  can  contribute  to  this  end  by  making  their  trans- 
actions ethically  more  fair,  just  and  dependable,  will 
in  the  long  run  contribute  to  their  final  success. 

Unfair  competition  is  based  on  the  policy  of  "each 
one  for  himself  and  the  devil  take  the  hindmost." 

Those  conducting  their  business  along  these  lines 
may  be  expected  to  show  an  utter  disregard  for  the 
rights  of  others.  They  see  fit  to  deprive  a  competitor 
of  a  square  meal  by  starving  themselves. 

They  operate  along  the  lines  of  the  old  injunction, 
"Get  business ;  get  it  fairly  if  you  can,  but  get  it." 

In  this  conflict,  a  very  serious  error  is  continually 
made  by  considering  that  the  sol#  theory  and  practice 
of  competition  is  based  on  mere  price  comparison,  and 
each  seems  to  forget  that  there  is  probably  enough  to 
"go  around"  and  that  it  is  not  necessary  for  them  to 
get  every  bit  of  business  they  strive  for. 

Competition  in  the  form  of  mere  price  comparison 
is  the  most  degrading  form  of  competition  to  those 
who  indulge  in  it. 

It  might  be  termed  gradual  annihilation,  for  it  has 
no  ending,  and  under  such  a  condition  the  cost  of 
goods  is  often  forgotten  and  the  red 
flag  appears  before  the  doors  of  the  ^^^ 

establishments  contending  for  the  busi-    Competition  Not 

ness.  a  Good  Thing 

So  many  conditions  surround  the 
prices  of  scores  of  competitors,  that  it  is  difficult  to 
know  where  the  end  will  be,  if  the  sole  argument  for 
business  is  one  of  price. 

Price  Competition  merely  means  a  bargaining 
process— a  haggling  process— a  bidding  and  rejecting, 

S7 


.> 


-.t 


I 


I 

I 


PRICE     MAINTENANCE 

an  experimentation  with  offers  on  either  side,  bluff, 
and  more  or  less  deception,  an  attempt  on  the  part  of 
each  side  to  read  the  mind  and  force  the  limit  of  the 
other  side — all  these  constitute  competition  in  which 
price  alone  is  the  argument  of  the  seller. 

Said  Mr.  J.  B.  Adams,  Sales  and  Advertising 
Manager  of  Iver  Johnson's  Arms  and  Cycle  Works, 
Fitchburg,  Mass.,  recently: 

"The  only  phase  of  competition  which  can  benefit 
humanity  is  quality  competition,  and  that  is  the  exact 
antithesis  of  price  competition.  The  two  cannot  ride 
in  the  same  boat.  When  price  competition  begins, 
quality  competition  ceases. 

"Price  maintenance,  that  is,  the  insistence  of  a 
manufacturer  that  his  goods  must  be  sold  at  a  given 
price,  is  a  powerful  but  beneficient  force  which  de- 
stroys the  evil — ^price  competition — and  preserves  the 
good — quality  competition. 

"Let  us  consider  a  fanciful  illustration. 

"Suppose  Congress  should  decree  that  six  dollars 
must  henceforth  be  the  retail  price  for  a  certain  style 
of  revolver,  also  fixing  arbitrary  commissions  for  job- 
ber and  retailer.  Is  competition  killed?  Not  at  all. 
They  have  simply  wiped  out  price  competition.  The 
rivalry  between  manufacturers  is  as  intense  as  ever, 
but  it  is  wholly  a  rivalry  in  excellence.  Each  gives  the 
last  possible  penny  in  quality.  The  consumer  gets  the 
long  end. 

"We  will  not  introduce  a  reform  wave  which  ef- 
fects the  repeal  of  the  above  statute  and  forbids  price 
maintenance  in  any  form. 

"Result:     The    manufacturer   making   the   least 

38 


Pric© 

Competition 

Suinouft 


COMPETITION 

desirable  revolver  and  whose  trade  is,  therefore,  small- 
est and  least  profitable,  cunningly 
divests  his  product  of  a  little  quality 
where  it  won't  show  and  floods  the 
market  by  declaring  a  retail  price  of 
four  dollars.  Other  manufacturers  fol- 
low suit.  Unchecked  price  competition  among  jobbers 
and  retailers  breaks  the  four-dollar  price  until  profit 
disappears.  Said  jobbers  and  retailers  clamor  for 
prices  which  will  restore  their  profits.  Again  the 
manufacturer's  price  of  the  least  desirable  weapon  is 
cut,  with  a  corresponding  sacrifice  of  quality,  and 
again  the  others  follow  suit. 

"Where  will  it  end  ?  The  manufacturers  can  com- 
bine or  they  can  all  fail. 

"Now  has  the  consumer  benefited?  No!  he  has 
paid  out  a  lot  of  money  for  something  he  did  not  want. 
Instead  of  owning  a  revolver  that  would  have  been  a 
source  of  pride  and  satisfaction  for  his  whole  life,  he 
has  acquired  a  dangerous,  fraudulent,  crude  piece  of 
junk  which  he  will  probably  give  or  throw  away. 

"See  what  price  competition  has  done  to  food  pro- 
ducts, sewing  machines  and  a  hundred  other  lines.  It 
wrecked  the  bicycle  business  and  drove  over  two  hun- 
dred prosperous  firms  out  of  business.  To-day  the 
bulk  of  bicycles,  which  ought  to  be  made  as  accurately 
as  a  high  grade  fire  arm,  conform  rather  to  the  me- 
chanical standards  of  agricultural  machinery.  It  was 
miserably  made,  fraudulent  bicycles  that  temporarily 
ruined  the  glorious  sport — nothing  else.  To-day,  there 
are  not  more  than  five  factories  that  dare  attempt  ta 
produce  high  grade  machines." 

39 


W  9 


PRICE    MAINTENANCE 

The  business  men  who  fail  to  secure  a  price  suffi- 
cient  to  cover  their  overhead  expenses  and  fair  living 
profit  and  who  feel  that  price  comparison  or  price  com- 
petition  is  the  only  way  to  get  business,  should  look  to 
some  lines  of  work  other  than  managing  businesses. 

Take,  for  example,  stores  where  jewelry,  fine 
dress  goods,  linens,  men's  furnishing  and  other  goods 
of  quality  are  sold.  In  these  places,  price  is  mentioned 
last  and  the  comparisons  are  made  on  a  basis  of  qual- 
ity, attractiveness  of  design,  and  other  points  of  excel- 
lence or  superiority. 

If  objection  is  made  to  the  price,  the  buyer  is  told, 
in  a  nice  manner,  "It  is  true  that  the  price  is  not  the 
price  of  cheap  goods,  but  for  the  quality  and  style 
of  the  goods,  the  price  is  a  very  fair  one." 

No  price  argument  is  indulged  in  beyond  such  a 
statement  on  the  part  of  the  representative  of  these 
houses  selling  goods  of  exclusive  design  and  quality 
and  the  reputation  of  such  houses  for  reliability,  fair- 
ness, good  service  and  excellent  goods,  becomes  well 
Icnown  in  the  community,— and  there  are  hundreds  of 
such  establishments  throughout  the  country  which  are 
to-day  among  the  most  respected  and  prosperous  in 
their  several  communities. 

The  government  of  this  magnificent  country  of 
ours  spends  millions  of  dollars  in  disseminating  in- 
tJovemment  formation  in  endeavors  to  equalize  rates 
itoforces  Fair     ^nd  prices,   in  establishing  standards 

of  foods  and  measures  and  in  teaching 
the  people  how  to  live  and  be  healthy, 
while  all  newspapers  devote  a  large  por- 


■Competition 
Among 

Public  Service 
Corporations 


tion  of  their  space  to  quoting  market  (i.  e,,  fixed  or 


40 


COMPETITION 

asked)  prices  and  conditions.  Our  National  and  State 
governments  practically  eliminates  price  competition 
by  making  rates  for  railroads,  both  for  passenger 
mileage  and  for  freight,  by  making  agreements  for 
telegraph  and  telephone  service  on  fixed  schedules,  and 
above  all  by  compelling  through  the  courts  all  plain- 
tiffs to  prove  that  their  claim  is  based  on  the  market 
prices  or  value  before  it  is  accepted  as  just  and  rea- 
sonable.  All  this  tendency  is  overiooked  and  price 
competition  still  seems  to  remain  uppermost  in  the 
minds  of  many  otherwise  good  merchants. 

Price  cutting,  and  continued  violations  of  trade 
ethics  may  temporarily  increase  tonnage,  but  as  be- 
fore stated,  the  competitors  of  a  house  following  such 
methods  will  surely  retaliate,  and  demoralization  wiU 
result. 

In  the  strife  for  trade,  it  must  be  borne  in  mind 
that  money  can  only  be  made  by  sustaining  values,  and 
values  cannot  be  maintained  if  we  ex- 
hibit no  "backbone"  and  confidence  in 
our  quotations,  permitting  every  cus- 
tomer and  competitor  to  bear  down  our 
prices. 

Ruinous  competition  in  prices  still  exists,  though 
hardly  to  the  extreme  of  fifty  or  sixty  years  ago,  when 
frequently  opposing  stage  lines  carried  their  passen- 
gers free,  and  steam  boats  sometimes  not  only  carried 
them  free,  but  even  threw  in  the  meals. 

And  yet,  is  this  much  different  from  the  "free 
goods"  of  which  we  hear  so  much  to-day,  where  a  sel- 
ler will  throw  in,  free  of  charge,  so  many  goods  if  a 
certain  quantity  is  purchased  ? 

41 


Price  Cutting 
Lowers  Values 


I 


t 


PRICE     MAINTENANCE 

Or,  is  it  different  from  the  extra  compensation 
which  some  manufacturers  offer  to  dealers*  salesmen 
as  an  incentive  for  them  to  push  their  goods? 

Exact  knowledge  of  costs  and  fair  selling  prices 
should  carry  with  it  a  determination  and  backbone  of 
staying  quality.  When  a  fair  bid  is  made  and  one  is 
called  upon  to  take  the  business  at  an  absurdly  low 
price,  said  to  have  been  made  by  a  competitor,  he  must 
be  brave  enough  to  pass  the  business  until,  by  a  con- 
tinuance of  such  a  practice  his  foolish  competitors  meet 
their  inevitable  end. 

In  Germany,  there  is  a  very  strict  law  in  force 
against  unfair  competition. 

The  law  is  a  part  of  their  civil  law  code,  and  the 
matter  is  handled  in  the  following  manner : 

If  one  person  thinks  another  person  harms  his 
trade  by  misrepresentation,  humbug  or  lies,  personally 

or  through  travelers  or  agents,  or  by 
advertisement,  etc.,  he  can  go  to  the 
public  prosecutor   (Staatsanwalt)   and 
complain.     (This  is  a  government  offi- 
cial whose  chief  work  is  to  follow  any 
crime  or  act  against  the  security  of  persons  and  the 
welfare  of  the  State  and  its  subjects  which  comes  to 
his  knowledge.) 

If  you  complain  about  unfair  competition,  you  have 
to  bring  certain  proofs  against  your  competitor,  and 
if  the  public  prosecutor  thinks  them  justified  to  a  cer- 
tain degree,  he  gives  the  whole  case  to  the  ordinary 
law  courts  (Strafkammer),  in  which  the  case  is  fol- 
lowed and  judged  as  any  other  case,  the  plaintiff  in  this 

42 


The  German 
Law  on 

Competition 


; 


COMPETITION 

case  the  Staatanswalt,  who  is  an  employee  of  the  Im- 
perial Government. 

If  you,  as  the  plaintiff,  think  that  the  accused  has 
caused  you  a  loss  by  his  unfair  competition,  which  you 
can  express  in  provable  sums,  you,  at  the  same  time, 
go  to  the  law  courts  as  secondary  plaintiff  (Nebenk- 
lager) ,  and  these  two  cases  (the  public  and  your  priv- 
ate cases)  are  judged  together. 

It  is  considered  unfair  competition  also,  if  your 
competitor  says  in  his  advertisement  that  he  has  al- 
ready sold  5,000  machines  and  he  has  not,  or  if  a  news- 
paper says  they  have  published  50,000  copies  a  day, 
and  that  is  not  true. 

Or,  if  a  house  advertises  to  sell  their  stock  under 
cost  price,  and  that  is  not  true,  you  as  competitor 
can  claim  the  protection  of  the  law. 


43 


Petty  Dislikes 
Out  of  Place  in 
Business 


CHAPTER  III. 

VINDICTIVE  COMPETITION. 

Business  men  living  in  propinquity  will  continu- 
ally fall  afoul  of  one  another,  but  such  relations  should 
not  become  so  chronic  that  a  "vendetta"  is  estab- 
lished. 

Petty  personalities  should  be  entirely  eliminated 
from  business.    They  are  objectionable  in  any  place, 

but  if  one  is  in  business  to  make  money, 
he  should  avoid  building  up  strife  and 
allow  no  narrow  feeling  to  becloud  the 
real  issue  and  to  interfere  with  his 
profits. 

You  are  not  in  business  to  regulate  others.  Your 
purpose  should  be  to  show  the  trade  that  your  house 
will  give  them  best  service,  prompt  deliveries,  the  best 
quality  of  goods  and  values  which  cannot  be  excelled. 
In  other  words,  do  not  waste  your  time  talking  about 
your  competitors  or  planning  to  "euchre"  them,  but 
wax  enthusiastic  over  your  own  goods,  your  own  fa- 
cilities, and  the  advantages  which  you  have  to  offer. 

Personal  enmity  will  be  found  to  be  a  serious  ob- 
stacle in  the  way  of  profits. 

Competitors  in  no  line  of  business  have  great 

44 


All  Made  of  the 
Same  Clay 


VINDICTIVE   COMPETITION 

horns  or  cloven  hoofs ;  they  do  not  infest  dark  alleys ; 
and  wear  slouch  hats  and  comforters, 
going  about  smelling  of  gin  and  breath- 
ing curses,  as  does  the  villain  in  the  low 
melodrama. 

On  the  other  hand,  many  of  those 
who  are  thought  to  possess  such  undesirable  features 
may  be  found  on  the  removal  of  their  hats  to  have  no 
horns;  indeed,  if  they  took  off  their  coats  one  might 
find  a  pair  of  beautiful  angel  wings. 

If  a  friendly  attitude  is  assumed  toward  neigh- 
bors in  business  and  a  willingness  is  shown  to  credit 
them  with  the  possession  of  common  honesty  and 
rectitude  of  purpose,  there  will  be  some  hope  of  keep- 
ing faith  in  the  observance  of  the  basic  rules  of  good 
business. 

If,  on  the  other  hand,  suspicion  and  doubt  of  com- 
petitors is  allowed  to  lurk  in  one's  mind  it  is  likely 
that  the  competitors  will  protect  themselves  against 
supposed  lack  of  good  faith  by  underhanded  methods, 
each  vigorously  blaming  the  other  and  deploring  the 
condition  which  they  themselves  have  assisted  in  cre- 
ating. 

The  dread  of  retaliation  should  cause  men  to  pause 
before  entering  into  vindictive  competition. 

Driven  by  his  exasperated  instinct  of  self-preser- 
vation the  seller  who  thinks  himself  attacked  or  in- 
jured, is  prone  immediately  to  react. 

This  attitude  is  natural  among  the  best  of  men, 
for  the  more  one  recoils  from  doing  an  unjust  or  un- 
fair action,  the  more  he  resents  suffering  such  an  ac- 
tion to  be  done  towards  him. 

45 


i; 


PRICE    MAINTENANCE 

It  must  be  borne  in  mind,  however,  that  the  pre- 
rogative of  vengeance  is  not  vested  in  one^s  self  and 

that  private  retaliation  which  finally 
Bevenge  by  hits  not  only  the  first  offender,  but  all 
te^F^lh^"^'^    others,  innocent  and  guilty  alike,  is  not 

countenanced  by  good  business  men. 
If  a  merchant  desires  to  retaliate 
on  a  competitor  for  specific  instances  of  unfair  com- 
petition he  should  give  the  matter  very  careful  thought 
before  adopting  any  retaliatory  measures. 

He  should  consider  the  competitors*  strength,  the 
probability  of  a  spread  of  the  cut  price,  the  effect  of 
the  cut  prices  on  his  goods  on  other  commodities,  the 
probable  length  of  the  fight  and  he  should  make  a  fairly 
intelligent  forecast  of  the  result. 

Shall  he,  then,  inaugurate  a  price  war,  and  en- 
deavor to  meet  his  competitor  on  his  own  ground  ? 

Obviously,  this  course  is  a  dangerous  one  for  sev- 
eral reasons. 

In  the  first  place,  it  is  not  always  possible  to  de- 
termine beforehand  who  will  be  the  survivor. 

Finally,  even  the  survivor,  when  all  is  over,  finds 
prices  so  demoralized  that  years  may  be  required  to 
again  place  the  goods  on  a  paying  basis. 

Under  such  circumstances  the  trade  should  not 
retaliate  in  kind  by  starting  a  price  war. 

They  should  improve  their  qu&lity  and  their  ser- 
vice, both  in  the  sales,  advertising,  shipping  depart- 
ment, looking  carefully  to  their  relations  with  the 
trade  and  they  will  probably  find  that  their  extra  ef- 
forts toward  procuring  business  during  the  battle,  will 
result  in  a  permanent  increase  thereafter. 

46 


An  Open  Fight 
Kills  Profits 


VINDICTIVE   COMPETITION 

If  vindictive  competition  is  engaged  in,  the  trade 
is  soon  aware  of  the  facts. 

Buyers  use  the  unfavorable  conditions  to  the  best 
advantage  and  exaggerated  statements  having  a  down- 
ward tendency  on  price  run  rampant. 

One  house  is  pitted  against  the 
other,  the  salesmen  are  fired  with  the 
spirit  of  the  fight,  and  profits  are  en- 
tirely overlooked  in  the  struggle  for 
orders. 

The  contestants  are  bitter  in  their  struggle. 
Meanwhile,  the  shrewd  customers  take  advantage  of 
this  state  of  affairs  to  load  up  at  sacrifice  prices  while 
it  lasts,  although  they  secretly  pity  the  sellers  for  the 
lack  of  brains  displayed. 

Then,  we  have  participating  in  vindictive  com- 
petition he  who  refuses  to  co-operate  with  the  majority 
of  his  competitors. 

Such  a  one  often  maintains  that  his  competitors 
are  "crooked,"  that  they  have  it  "in  for  him,"  and  that 
they  "knock  him"  and  that  therefore 
he  will  have  nothing  to  do  with  them. 

He  then  endeavors  to  seek  to  dis- 
credit the  work  of  fair-minded  competi- 
tors and  all  those  in  accord  with  him 
by  proclaiming  himself  a  "cut  price"  house  with  the 
usual  well  known  reference  to  "trusts,"  "combinations" 
and  "independent  dealers." 

Without  question,  there  can  be  no  form  of  compe- 
tition more  vindictive  and  more  unpardonable  than 
this.    Not  only  is  he  without  the  excuse  of  seeking  to 

47 


The  Unruly 
Competitor 


u 

I 

i 


PRICE    MAINTENANCE 

enlarge  his  business  or  his  field  of  action,  but  he  is 
seeking  to  discount  the  efforts  of  those  who,  working 
for  their  own  interests,  must  necessarily  be  advanc- 
ing his  at  the  same  time,  and  the  ultimate  result  is  that 
in  injuring  them,  he  harms  himself.  Like  Samson 
of  old,  in  pulling  down  their  structure  he  buries  him- 
self also,  but  with  the  difference  that  instead  of  de- 
stroying his  enemies  he  brings  ruin  upon  those  who 
nevei'  injured  him. 

It  will  be  seen  that  the  man  who  enters  upon  a 
campaign  of  vindictive  competition  undertakes  an  ex- 
ceedingly   large    contract.      Not    only 
must  he  cast  himself  loose  from  all  his 
Self  Abnegation   friends  and  associates  in  trade,  but  he 

must  adopt  a  course  of  action  contrary 
to  the  usages  and  customs  of  civilized 
society.  Alone  and  unaided,  he  must  pursue  his  way,, 
incurring  the  condemnation  of  all  judicious-minded 
men  and  not  even  retaining  the  respect  of  his  cus- 
tomers. 

An  unkindly  feeling  is  often  felt  by  older  houses, 
when  a  new  competitor  is  announced  in  their  territory. 

They  refuse  to  "recognize"  the  newcomer— they 
proclaim  that  there  are  are  already  enough  houses  to 
fully  supply  the  demand  and  numerous  prophecies  are 
made  regarding  the  length  of  life  of  the  newcomer. 

Efforts  are  freely  made  to  handicap,  discourage 
and  even  to  put  him  out  of  business. 

Sometimes,  if  both  houses  are  fairly  supplied  with 
capital,  the  effort  to  put  the  new  house  out  of  business 
is  so  successful  that  both  the  new  jobber  and  the 
established  concern  finish  in  bankruptcy  together,  but 

48 


Impossible  to 

Prevent 

Newcomers  in 

the  Business 


VINDICTIVE   COMPETITION 

more  often  both  just  about  manage  to  stave  off  the 

final  day  of  reckoning  and  meanwhile  both  work  and 

scheme  how  best  to  play  "give  away" 

to  the  public,  each  assuring  himself  that 

while  he  loses  a  dollar  his  competitor 

loses  two  and  the  game  of  leprosy  in 

business  continues.     Better  by  far  to 

have  a  talk  and  results  will  be  far  more  satisfactory. 

The  following  instance  of  vindictive  competition 
illustrates  its  operation  in  the  retail  trade. 

In  the  little  town  of  Crystal  Lake,  Nebraska,  there 
was  some  years  ago  a  merchant,  one  S.  L.  Davis,  who 
always  got  a  fair  price  for  his  merchandise,  enjoyed 
a  large  trade,  gave  good  service  and  was  prosperous. 

One  day  two  Swedes  started  in  business  and  an- 
nounced their  intention  of  giving  Davis  a  sharp  run 
for  his  money.    They  loudly  proclaimed 
that   they    could    beat    Davis's    prices 
every  time  and  would  put  him  "down 
and  out." 

At  the  time  we  speak  of,  a  cus- 
tomer went  into  Davis's  store  to  buy  a  box  of  horse 
shoe  nails.  Davis  asked  $6.50  (his  cost  was  $5.50). 
The  customer  demurred.  He  said  he  thought  he  could 
beat  it  at  the  Swedes. 

"Well,"  said  Davis,  "go  down  there  and  tell  them 
that  I'll  sell  you  the  box  for  $4.00  and  as  they  say 
they'll  undersell  me  and  put  me  out  of  business,  they'll 
probably  beat  it." 

The  customer  went  down  to  the  Swedes  and  asked 
the  price  of  the  nails.  They  knew  that  he  traded  with 
Davis  and  asked  how  much  Davis  wanted.    He  told 

49 


A  Case  of  Local 

Vindictive 

Competition 


I' 


I 


PRICE    MAINTENANCE 

them  $4.00.  They  hesitated  and  finally  said,  "All 
right,  take  them  along." 

The  customer  said,  "Oh,  no,  Davis  only  wants 
$4.00  and  you  claim  you  can  beat  his  prices.  How  low 
will  you  sell  this  box?" 

"Well,"  said  they,  "$3.75  is  the  best  we  can  do; 
will  you  take  them?" 

The  customer  did  take  them  at  a  flat  loss  of  $1.75 
a  box,  not  counting  the  running  expenses,  which  were 
certainly  25%  added  to  cost  or  20%  on  the  selling  price. 

And  Davis  and  the  Swedes  in  this  little  town  are 
not  the  only  ones  who  ever  played  in  a  game  like  that. 
Often  business  men  feel  called  upon  unwittingly  to 
play  the  fool  because  some  competitor  has  (or  they 
THINK  he  has)  done  a  certain  thing  or  quoted  a  certain 
price. 

A  Mean  Practice, 

There  is  also,  unfortunately  for  the  cause  of  fair 
profits,  a  class  of  vindictive  salesmen  who  are  not 
above  pursuing  a  "dog  in  the  manger"  policy.  If  they 
find  that  others  have  secured  the  business,  they  are  not 
content  unless  they  can  do  some  "backbiting."  For 
instance,  a  man,  representing  a  jobbing  house  had  sold 
a  bill  of  goods,  let  us  say,  at  one,  two,  three  or  four 
dollars  an  article  to  a  retailer.  Along  came  the  rep- 
resentative, a  personal  friend  of  the  retail  buyer,  who 
said  to  him,  "Bill,  have  you  bought  your  goods  yet?" 
He  said  he  had.  "What  did  you  pay?"  "I  paid  one, 
two,  three  and  four  dollars."  "Why,  who  had  the 
nerve  to  roast  you  like  that?"  "What  ought  I  to  have 
bought  these  for?"    "Ninety  cents  and  on  up  to  $3.90." 

50 


5 


( 


I. 


MaJ 


VINDICTIVE   COMPETITION 

He  did  not  say  that  he  would  sell  them  for  that,  but 
he  told  the  fellow  he  ought  to  have  bought  for  that, 
and  chuckled  in  glee  when  he  saw  that  even  if  he  did 
not  get  the  business,  he  had  spoiled  it  for  his  com- 
petitor. 

The  protection  of  profits  against  such  a  contempti- 
ble and  niggardly  practice  is  well  nigh  impossible. 

All  salesmen  should,  however,  be  educated  and 
urged  to  refrain  from  any  such  detestable  form  of 
competition. 

A  Striking  Case  of  Bitter  Competition. 

In  the  early  part  of  1912  some  manufacturers  of 
a  cast  iron  product  who  were  selling  their  product  at 
unremunerative  prices  desired  to  improve  conditions 
surrounding  the  sale  of  their  commodity. 

They  accordingly  held  a  meeting,  and  found  that 
the  cost  of  production  was  $30.00  per  ton.  The  gen- 
eral selling  price  was  $28.00  per  ton,  each  think- 
ing that  his  competitor's  cost  was  higher  than  his  and 
that  by  some  means  he  enjoyed  an  advantage  in  cost 
of  production  which  was  not  enjoyed  by  his  fellows. 
At  the  meeting  alluded  to,  it  was  made  clear 
that  by  no  art  of  legerdemain  or  by  no  feat  of  the  pres- 
digitateur,  could  the  cost  possibly  be  less  than  $28.00 
per  ton. 

The  meeting  was  a  typical  one  with  deep  feeling 
of  one  competitor  against  another  and  deliberations 
were  conducted  throughout  the  entire  day.  When  it 
looked  as  if  a  point  of  agreement  would  be  reached, 
some  objection  would  be  raised  and  defeat  n>uch  of  the 
work  which  had  previously  been  accomplished. 

51 


i 


II 


I 


I 


PRICE    MAINTENANCE 

The  manufacturers  left  the  meeting  with  a  well 
defined  knowledge  of  what  the  cost  of  production  was, 
but  as  far  as  an  understanding  of  the  other's  future 
course  of  action  was  concerned,  they  were  not  in- 
formed. 

A  few  days  later,  a  manufacturer  located  in  Chi- 
cago who  had  been  at  the  meeting,  felt  anxious  that  a 
better  condition  of  affairs  should  exist,  but  he  felt  that 
it  would  first  be  necessary  to  teach  his  Cleveland  com- 
petitor— who  was  his  strongest  rival — a  severe  lesson 
and  make  conditions  so  unbearable  that  he  would  cry 
for  mercy. 

He,  following  out  this  intention,  quoted  some  of 
the  best  trade  in  Cleveland  a  price  of  $25.00  per  ton 
on  his  goods.  The  dealer  to  whom  the  quotation  was 
made  phoned  his  local  manufacturer,  who  looked  into 
the  situation  with  the  result  that  he  requested  him  to 
purchase  secretly  on  his  account  2,000  tons  of  the  ma- 
terial at  $25.00  per  ton. 

This  the  dealer  did,  entering  the  order  for  the 
entire  2,000  tons.  A  few  days  later,  a  friendly  manu- 
facturer who  was  trying  to  get  the  warring  factions 
together,  visited  Cleveland  and  found  what  the  m.anu- 
facturer  had  done.  He  also  was  confidentially  let  into 
the  secret  of  the  way  in  which  the  Cleveland  man  had 
met  the  situation  and  saw  that  he  secured  2,000  tons 
of  Chicago  goods  at  a  price  of  $3.00  less  than  the  ac- 
tual cost  of  production. 

Later  the  Cleveland  manufacturer  went  to  Chicago 
and  the  Chicago  manufacturer  confidentially  told  him 
the  story  of  how  he  had  euchred  the  Cleveland  manu- 
facturer—how he  taught  him  a  lesson  he  would  not 

52 


k 


VINDICTIVE   COMPETITION 

forget  soon;  how  he  had  taken  2,000  tons  of  the  most 
desirable  business  of  this  Cleveland  man  away  from 
him. 

In  this  instance  of  vindictive  competition,  the 
Chicago  manufacturer  felt  that  he  was  the  victor,  and 
the  feeling  probably  did  him  good,  but  as  the  material 
advanced  about  20%  a  few  months  later  and  the  Cleve- 
land manufacturer  had  the  pleasure  of  supplying  the 
trade  with  material  costing  him  $3.00  less  than  he 
could  have  produced  it  for  in  his  own  foundry,  we  fail 
to  see  how  the  Chicago  man  got  the  revenge  he  was 
looking  for. 

This  may  be  an  extreme,  isolated  case,  but  it  ac- 
tually happened,  although  not  in  the  cities  mentioned, 
and  it  may  be  pertinent  to  remark  that  the  intelligent 
manufacturers  in  that  line  of  business  are  still  in- 
dulging in  such  competition  and  employing  methods 
which  are  just  about  as  insane  as  any  unbusinesslike 
actions  could  be. 

Hiring  Competitors*  Salesmen, 

A  vindictive  feeling  has  often  been  engendered 
among  competitors  by  the  hiring  of  one  another's  em- 
ployees. 

Where  salesmen   and   confidential     firing 


Competitors' 
Salesmen  and 
Resulting  Bad 
Feeling 


employees  are  engaged  by  a  competitor 
when  they  are  in  the  service  of  another 
house,  a  struggle  to  hold  certain  valued 
trade  generally  results. 

The  salesman  considers  that  he  can  carry  "his 
trade"  to  the  new  house,  while  the  old  house,  which  has 
spent  a  vast  deal  of  money,  perhaps  over  a  long  period 

53 


PRICE    MAINTENANCE 

of  years,  in  developing  this  trade,  makes  every  effort 
to  hold  it. 

Securing  in  this  way  an  intimate  knowledge  of  the 
business  of  the  competitor,  steps  will  be  taken  by  the 
new  house  and  salesman  to  swing  the  trade  to  them, 
and  alienate  the  customers  of  the  salesman's  former 
employer.  This  will  invite  retaliation,  and  while  con- 
demning such  methods  the  former  employer  may  use 
tactics  similar  to  his  competitor's,  and  a  general  price 
cutting,  inducement  offering,  baiting  contest  will  take 
place  in  an  effort  to  hold  or  secure  the  trade.  The 
combating  houses  needlessly  sacrifice  their  profits; 
values  in  the  entire  territory  are  reduced  and  unprofit- 
able conditions  prevail  until  the  "war"  blows  over. 

Then,  when  harmony  is  about  to  prevail,  they 
sometimes  again  break  out  in  a  senseless  argument  as 

to  "who  was  to  blame,"  and  repeat  a 

burden  of  past  history  which  should 

be  buried  deep  instead  of  being  again 

repeated   needlessly   and   employed   to 

bring  about  discord  and  a  continuance 

of  the  unprofitable  conditions. 

Instances  have  been  known  where  the  employment 

of  a  single  salesman  under  such  circumstances  has 

caused  a  loss  of  scores  of  thousands  of  dollars. 

In  some  sections  this  has  been  avoided  by  an  un- 
derstanding among  those  in  the  same  line  of  business 
to  the  effect  that  they  would  consider  it  a  breach  of 
common  business  courtesy  to  treat  with  each  other's 
employees  unless  they  were  free  of  contract;  and  with- 
out first  finding  out  from  their  competitors  whether  or 

54 


Forget  tbe  Past 


VINDICTIVE   COMPETITION 

not  they  will  be  put  to  any  serious  inconvenience  or 
annoyance  through  his  action  in  so  doing. 

This  does  not  mean  that  a  salesman  should  not 
be  free  to  better  himself  by  a  change.  The  point  is,  that 
extreme  care  should  be  taken  to  take  no  action  which 
would  tend  to  disrupt  the  business  organization  of  a 
competitor  through  hiring  his  employees,  remember- 
ing that  the  Golden  Rule  is  quite  as  applicable  here  as 
elsewhere,  and  also  that  your  competitor  may  also 
overbid  you  for  the  services  of  your  own  people. 


55 


.1  \\ 


I 


*<      III 


i 


i 


CHAPTER  IV. 

UNINTELLIGENT  COMPETITION. 

The  commonly  accepted  statement  that  at  least 
nine-tenths  of  all  the  men  who  go  in  business  either 
fail  or  go  out  of  business  with  their  resources  reduced 
is  verified  in  almost  every  line  of  commercial  activity. 
Perhaps  an  important  reason  for  these  failures 
is  the  fact  that  mercantile  or  manufacturing  pursuits 
are  not  confined  to  those  who  have  a  thorough  knowl- 
edge of  any  business  and  who  have  sufficient  brains  to 
sell  at  a  profit.  Instead,  entrance  into  any  line  of  busi- 
ness is  about  the  easiest  thing  in  the  world. 

The  lack  of  proper  business  training  and  experi- 
ence, prior  to  undertaking  to  manage  a  business,  is  a 

factor  which  ofttimes  handicaps  a  man 
who  starts  in  business  sufficiently  to 
preclude  all  reasonable  chance  of  suc- 
cess. 

Athletes  train  daily,  mechanics 
spend  long  terms  in  apprenticeship,  teachers  years  in 
schools  and  colleges,  lovers  a  decade  in  wooing  and 
courting,  musicians  and  physicians  a  lifetime  in  study 
and  practice,  but  the  man  who  wants  to  go  in  business, 
just  puts  his  name  over  the  door  and  thinks  he  knows 
how  to  do  business ! ! ! 

Do  you  wonder  that  the  result  is  often  failure? 
Temporary  success  is  often  attained ;  staying  in  busi- 

56 


Ko  Preparation 
Bequired  for 
Entrance  Into 
Business  Life 


1 


UNINTELLIGENT    COMPETITION 

ness  for  any  length  of  time  and  succeeding,  however, 
is  quite  another  matter.  But,  as  long  as  they  continue 
in  business,  each  one  furnishes  competition  to  the 
legitimate  trade  for  this  period,  and  there  are  always 
enough  of  such  neophytes,  who  dream  of  untold  riches 
concealed  in  the  business,  to  constantly  block  the  field. 

Some  newcomers  must  test  the  fire  of  competition 
before  it  will  be  believed  that  it  is  hot,  or  that  it  can 
consume  persons  so  great  as  they. 

There  are  others  who  have  been  employed  by  those 
in  the  same  line  of  business  and  who  branch  out  for 
themselves,  in  their  ambition  to  progress,  but  they 
have  sufficient  brains  to  know  how  to  get  a  share  of 
the  business  without  making  it  unprofitable  for  every 
one  else,  themselves  included. 

These  intelligent  ones  are  the  ones  who  ulti- 
mately succeed — ^the  rest  soon  reach  the  end  of  their 
rope. 

Those  who  must  cut  prices  to  break  into  the 
market  stand  a  good  chance  of  losing  everything  they 
have,  as  well  as  of  being  unable  to  pay  their  creditors 
for  the  material  which  they  have  re-sold  at  absurd 
prices. 

Experience  shows  that  new  concerns,  manned  by 
those  without  capital  or  ability,  obtain  credit  alto- 
gether too  easily  and  are  not  closely  questioned  about 
their  plans,  their  ability,  their  possibility  of  success, 
etc. 

Suppliers  of  raw  material  have  sold  goods  to  new 
manufacturers  who  have  had  no  possible  chance  of 
success.     These  manufacturers  have  made  up  some 

57 


I 
i 


I   r 


II 


Credit  Easy  to 
Obtain 


PRICE     MAINTENANCE 

goods,  have  sold  them  in  a  manner  calculated  to  hasten 
their  end,  and  in  a  short  time  have  gone  their  way, 

leaving  in  their  wake  a  demoralized 
market,  blasted  hopes  and  angry 
creditors. 

This   competition  on  the  part  of 
such   novices   is   not   founded   on   the 
basis  of  either  intelligence  or  understanding.    Neither 
is  it  confined  to  any  particular  lines  of  business. 

Many  wholesalers  and  manufacturers  appear  and 
disappear  in  rapid  succession,  all  practicing  the  same 
tactics. 

New  retailers  spring  up — cut  prices  indiscrim- 
inately— spoil  many  a  good  merchant's  chances  for 
making  a  living  profit  and  disappear,  leaving  the  usual 
trail  of  bad  debts. 

New  printers,  plumbers,  electricians  and  other 
artisans  enter  into  business  for  themselves  with  a 
smattering  of  knowledge  of  their  trade  and  an  abso- 
lute lack  of  knowledge  of  how  to  figure  and  secure  busi- 
ness at  a  profit. 

These  novices  bid  low  prices  on  contracts  and 
other  new  business,  and  to  their  surprise,  get  the 

orders.  In  the  first  place,  they  don't 
know  how  to  figure.  They  don't  know 
what  a  job  costs  them.  If  they  buy  the 
goods  to  re-sell,  they  don't  know  how 
much  to  ask  to  cover  operating  ex- 
penses and  a  fair  net  profit. 

They  obtain  credit  for  supplies  '  and  furnish 
active,  even  if  not  intelligent  competition,  for  others 
in  the  same  line.    The  only  qualification  most  of  them 

5B 


New  and 
Inexperienced 
Cnt  Prices 


UNINTELLIGENT    COMPETITION 

ever  had  for  success  was  a  surplus  amount  of  nerve 
and  the  knowledge  that  they  needn't  worry,  as  they 
had  nothing  to  lose,  for,  whatever  losses  they  had, 
would  be  paid  by  those  who  furnished  the  capital  and 
the  materials  necessary  to  permit  them  to  become 
erstwhile  competitors. 

Another  type  of  unintelligent  competitor  is  he 
who  spends  much  time  in  endeavoring  to  corner  the 
market  and  in  making  himself  believe  that  his  cost  is 
lower  on  many  materials;  that  his  expenses  are  less 
than  his  competitors';  that  his  volume  of  business  is 
greater,  and  that,  therefore,  he  can  undersell  others. 
They  consider  that  they  are  just  a  trifle  smarter,  if 
you  please,  than  the  other  fellow.  They  should  perish 
the  thought,  or  investigate  and  clear  their  vision. 

If  need  be,  they  should  borrow  their  competitor's 
spectacles,  and  see  their  business  and  themselves  as 
others  see  them,  and  thereafter  be  true  to  themselves. 

This  unintelligent  competition  is  extremely  diffi- 
cult to  contend  with,  on  account  of  the  underlying 
causes  for  it  and  the  failure  of  those  conducting  their 
business  to  acquaint  themselves  with  the  facts.  In  his 
recent  article  in  The  World's  Work,  Mr.  John  D.  Rocke- 
feller writes : 

"Then  again,  we  have  the  type  of  man  who  really 
never  knew  all  the  facts  about  his  own  affairs.  Many 
of  the  brightest  kept  their  books  in  such  a  way  that 
they  did  not  actually  know  when  they  were  making 
money  on  a  certain  operation  and  when  they  were 
losing.  This  unintelligent  competition  was  a  hard  mat- 
ter to  contend  with.  Good  old-fashioned  common  sense 
has  always  been  a  mighty  rare  commodity.    When  a 

59 


II 

f 

II 

-I 

4 


PRICE    MAINTENANCE 

man's  affairs  are  not  going  well,  he  hates  to  study  the 
books  and  face  the  truth.  From  the  first,  the  men  who 
managed  the  Standard  Oil  Company  kept  their  books 
intelligently  as  well  as  correctly.  We  knew  how  much 
we  made,  and  where  we  gained  or  lost.  At  least,  we 
tried  not  to  deceive  ourselves. 

"My  ideas  of  business  are,  no  doubt,  old-fashioned, 
but  the  fundamental  principles  do  not  change  from 
generation  to  generation,  and  sometimes  I  think  that 
our  quick-witted  American  business  men,  whose  spirit 
and  energy  are  so  splendid,  do  not  always  sufficiently 
study  the  real  underlying  foundations  of  business  man- 
agement. 

"I  have  spoken  of  the  necessity  of  being  frank 
and  honest  with  one's  self  about  one's  own  affairs; 
many  people  assume  that  they  can  get  away  from  the 
truth  by  avoiding  thinking  about  it,  but  the  natural 
law  is  inevitable,  and  the  sooner  it  is  recognized  the 
better." 

Lack  of  intelligence  is  surely  displayed  in  the  way 
that  many  men  fail  to  realize  that  no  sale  of  goods  of 
any  character  ivhatsoever  is  exempt  from  bearing  its 
exact  share  of  the  cost  of  doing  business. 

The  salesman  urging  the  making  of  a  certain  price 
for  a  given  order  artfully  explains  that  it  won't  cost  a 
cent  more  to  get  the  order  and  handle  it  than  if  it  were 
passed. 

Such  a  salesman  obstinately  clings  to  the  false  no- 
tion that  every  cent  secured  above  invoice  cost  on  this 
particular  order  will  be  clear  profit,  and  he  tells  the 
sales  manager  that  it  will  be  a  clean  and  clear  net 
gain  of  ten  dollars  if  he  takes  the  business,  and  the 

60 


o 

CO 

bo 
08 

p. 

GQ 


O 

c8 

OS 

o 

o 

3 

m 


m 

08 
» 

X 


I 


I 


' 


UNINTELLIGENT    COMPETITION 

wonder  of  it  all  is  that  sometimes  the  sales  manager 
swallows  the  bait.  A  short  course  in  some  near-by 
night  school  would  do  both  a  world  of  good  and  save 
a  loss  for  the  entire  trade. 

The  unintelligent  competitor  does  not  know  how 
to  buy.  He  often  over-buys,  and  then  when  stock  does 
not  sell  in  proportion,  and  his  purse  tells  him  that  his 
capital  is  locked  up  in  merchandise,  which  does  not  sell 
quickly  enough,  he  sells  the  overstock  at  rummage  sale 
prices  without  regard  to  cost  or  profit. 


Imaginary  Competition, 

Imaginary  competition  falls  under  much  the  same 
head  as  misrepresentation  of  buyers,  and  salesmen 
often  fall  into  the  trap  set  by  the  wary  buyer. 

The  buyer  may  say  to  the  salesman  in  framing 
up  a  case  of  imaginary  competition :  "I  do  not  care  to 
mention  any  names,  but  one  of  your  competitors  was 
here  just  this  week  and  named  a  price  about  10% 
lower  than  you  are  quoting." 

The  facts  of  the  case  are,  that  the  competitor  may 
have  been  there,  or  he  may  not  have  been  there  at  all^ 
but  the  keen,  unscrupulous  buyer  had  learned  by  ex- 
perience that  to  make  a  salesman  shade  his  price,  he 
must  be  made  to  believe  that  his  competitors  are  doing 
so  and  so,  and,  therefore,  the  buyer  goes  to  the  trouble 
of  setting  up  an  imaginary  competitor  for  the  purpose 
of  beating  down  the  price. 


61 


» 


I 


I 


CHAPTER  V. 

CAUSE  AND  EFFECT. 

How  can  any  reasonable  business  man  imagine 
that  he  can  secure  all  the  business  in  his  line?  Com- 
petition has  always  existed  and  cannot  be  disposed  of. 
The  proportion  of  business  cannot  be  materially 
altered  by  price  cutting.  If,  by  cut-throat  methods,  a 
house  mcreases  its  sales  it  is  only  reasonable  to  expect 
that  competitors  will  quickly  adopt  similar  methods 
and  that  the  balance  of  trade  will  be  about  equal  after 
a  short  time. 

Too  many  business  houses  are  mesmerized  into 
the  idea  that  the  success  of  business  depends  only  on 

the  volume  of  business  done.  Imbued 
Volume  is  Good;  with  this  idea,  they  spend  much  time, 
But  Profits  energy   and    money   in    an    unhealthy 

Alone  Count         gt^fe  to  take  away  this,  that  or  the 

other  customer  from  their  competitor 
in  business,  who,  in  turn,  will  probably  pursue  the 
same  foolish  tactics  to  get  even  for  the  inroads  made 
upon  his  customers,  therefore,  losing  to  each  concern 
one  or  many  profitable  customers. 

Far  better  were  such  concerns  to  apply  themselves 
strictly  to  the  attention  of  their  own  business  by 
finding  what  their  costs  are,  making  selling  prices 
based  on  these  costs  which  are  fair  and  equitable  and 


■I, 


CAUSE    AND    EFFECT 

having  their  salesmen  imbued  with  the  idea  of  profits 
instead  of  volume. 

Every  time  that  a  manufacturer,  wholesaler,  or 
salesman,  knowingly  or  otherwise,  undersells  a  com- 
petitor or  cuts  to  meet  him  in  price,  he  either  estab- 
lishes or  aids  and  abets  a  practice  that  is  widespread 
in  its  destructiveness  to  commercial  interests  in  gen- 
eral. 

Such  methods  are  at  once  illegitimate  and  unbusi- 
nesslike, and  therefore  unqualifiedly  wrong. 

Assuming,  as  an  argument,  that  the  adversary  is 

powerful,  and  that  the  cut  price  plan  is  his  regular 

method  of  securing  business,  has  not 

experience  shown  that  no  one  concern   Even  out  Prices 

can  get  all  the  business;  that  the  man      ^^  ^°*  <*«* 

at  home  can  always  get  a  suflftcient  vol-  ^,  **** 

A  ,  ,  BusineoB 

ume,   at  reasonably  higher  prices,   to 

tide  him  over ;  and  that  no  cut-price  house  survives  the 
legitimate  one? 

And,  is  it  not  a  fact,  that  the  cut-price  dealer  is 
usually  defeated  in  the  end,  as  a  result  of  his  own 
methods?  For,  having  educated  the  trade  to  patronize 
him  only  by  reason  of  his  low  prices,  the  time  inevit- 
ably arrives  when  he  has  but  few  lines  left— not  suf- 
ficient to  maintain  him  in  business— and  his  disappear- 
ance from  the  arena  of  competition  becomes  but  a 
matter  of  a  short  period. 

A  far  better  way  to  increase  business  is  to  pursue 
an  enterprising  aggressive  policy,  to  have  an  undeviat- 
ing  one-price  system,  to  treat  all  in  a  spirit  of  fairness, 
and  to  hold  to  a  high  standard  of  business  methods! 
Surely,  the  conduct  of  such  a  house  will  impress  old 

63 


» 


PRICE    MAINTENANCE 

and  new  customers  alike  most  favorably  and  hold 
them  ioyal  and  not  susceptible  to  the  questionable 
temporary  advantage  of  dealing  with  cut-price  houses. 

If  it  is  true,  that  by  no  methods  can  a  house  gain 
a  monopoly  of  the  business  in  its  line;  if  it  is  true 
that  business  is  becoming  more  and  more  localized, 
why  should  it  not  be  conceded  that  the  proper  course 
is  to  make  every  effort  to  negotiate  a  profit  on  the 
business  in  hand? 

This  cannot  be  done  by  cutting  prices.  It  can  be 
done  by  the  "Live  and  Let  Live"  policy,  which  pays 
best  in  all  things. 

Lump  Prices, 

Lump  prices  offer  a  great  temptation  to  cut  fair 
prices  and  to  conceal  the  cut  in  the  lump  figure. 

Where  there  are  re-sale  prices  established  by 
manufacturers  of  patented  goods  or  where  manu- 
facturers of  unpatented  goods  ask  the 
trade  to  maintain  a  certain  price,  the 
quoting  of  lump  prices  does  not  permit 
anyone  to  see  whether  the  prices  on  the 
restricted  goods  have  been  cut  or  not. 
The  lump  price  proposition  is  a  bad  one,  and  in 
the  interests  of  fair  profits  it  would  be  well  to  con- 
sider whether  it  is  or  is  not  a  good  one. 

The  Price  Cutter  a  Pirate, 

Think  of  the  motives  of  the  aggressive  price 
cutter.  Are  they  not  debasing  in  that  in  selfish  greed 
he  endeavors  to  destroy  business  of  the  manufacturer 

64 


Lump  Prices 
Conceal  Cuts 


Low  Motives  of 
Price  Cutter 


CAUSE    AND    EFFECT 

and  his  neighboring  competitor  by  a  policy  based  upon 
the  incorrect  assumption  that  merchandising  is  a  sort 
of  commercial  warfare. 

He  admits  his  inability  to  secure  business  by  hon- 
orable means,  and  proceeds  to  break  down  the  fabric 
of  honest  merchandising  by  buccaneer- 
ing   methods    which    destroy    profits, 
breed    distrust,    foster    prevarication, 
forfeit  confidence  and  finally  rob  the 
consumer  by  debasing  the  quality  of 
commodities  upon  which  prices  are  cut,  if  not  actually 
driving  them  from  the  market. 

The  price  cutter  does  quite  as  much  harm  to  a 
manufacturer  as  the  vandal  who  deliberately  tampers 
with  an  article  so  as  to  impair  its  usefulness  in  the 
eyes  of  the  consumer.  In  the  case  of  the  price  cutter, 
the  effect  of  his  baneful  work  is  to  disturb  the  rela- 
tions of  the  manufacturers  with  his  distributors.  In 
planning  a  great  "coup"  our  friend,  the  price  cutter, 
selects  the  goods  of  known  identity  and  quality,  boasts 
of  his  "liberty^*  to  do  as  he  pleases  in  the  matter  of 
fixing  selling  prices,  but  he  mistakes  this  privilege 
and  opportunity  to  secure  a  living  profit,  for  the  license 
to  drag  in  the  dust  the  valuable  reputation  of  the  man- 
ufacturers of  popular  goods  for  his  own  selfish  ends, 
seeking  to  fill  his  personal  coffers  regardless  of  whom 
it  hurts. 

Justice  Holmes,  of  the  Supreme  Court,  said  re- 
cently: 

"I  cannot  believe  that  in  the  long  run  the  public 
will  profit  by  this  Court  permitting  knaves  to  cut 
reasonable  prices  for  some  ulterior  purpose  of  their 

65 


Price  Cutter 
Harms  Others 
for  Selfish  Gain 


PRICE     MAINTENANCE 

own,  and  thus  to  impair,  if  not  to  destroy,  the  produc- 
tion and  sale  of  articles  which  it  is  assumed  to  be  desir- 
able that  the  public  should  be  able  to  get." 

The  price  cutter  seeks  to  attract  trade  on  well- 
known  goods  for  motives  which,  as  before  stated,  are 

not  commendable.  In  some  cases  he 
will  sell  popular  manufacturers'  brands 
at  cut  prices,  or  even  down  at  cost  or 
less,  in  order  to  sell  other  goods  of  un- 
known reputation  at  an  excessive 
margin  of  profit,  relying  upon  the  success  of  this  effort 
to  bring  up  the  average  margin  of  profit. 

Indeed,  cases  have  been  known  where  prices  on 
standard  brands  of  goods  have  been  cut  for  the  de- 
liberate purpose  of  discrediting  their  sale,  and  alienat- 
ing the  loyalty  and  enthusiasm  of  other  distributors  in 
favor  of  some  other  goods  in  which  the  price  cutter 
may  have  been  interested. 

In  this  connection,  a  case  may  be  cited  where  a 
manufacturer  of  the  old-fashioned  open  blade  razors 
has  encouraged  dealers  to  cut  the  price  on  well-known, 
high-grade  safety  razors  for  the  purpose  of  hurting 
their  sale. 

Recently,  in  one  of  our  cities,  a  hatter  displayed  in 
his  window  hats  of  a  popular  make  at  extremely  low 
prices.  Investigation  proved  that  the  hats  were  gen- 
uine, but  of  unsaleable  sizes,  and  old  styles.  The 
dealer,  however,  doubtless  sold  many  nondescript 
goods  through  this  crooked  trick. 

The  very  fact  that  price  cutting  tactics  are  re- 
sorted to  so  largely  by  the  lowest  class  of  operators, 
should  be  sufficient  to  deter  good  business  men  from 

m 


i 


f 


CAUSE    AND    EFFECT 

following  this  policy.  The  thought  of  adopting  the 
personal  habits  and  moral  standard  of  such  men  is 
repulsive,  yet  many  otherwise  respecta- 
ble men  adopt  their  business  morals  ^  Low  stand  rd 
which  lead  to  conduct  of  reprehensible  oT  B^m*^ 
character.  Morals 

Men  of  price  cutting  propensities, 
following  disreputable  business  practices,  are  largely 
avoided  by  the  better  class  of  manufacturers.  The 
man  who  manoeuvers  to  obtain  an  advantage  in  busi- 
ness by  unfair  methods  is  also  no  longer  considered  a 
desirable  channel  of  distribution  and  is  not  looked  upon 
as  a  good  credit  risk. 

The  price  cutter's  bland  statement  that  the  manu- 
facturer who  insists  on  the  maintenance  of  prices,  is 
standing  in  his  own  light,  is  no  longer  seriously  taken. 
His  determined  importunity  to  secure  goods  without 
re-sale  agreement  and  veiled  threat  to  secure  them  in 
a  round-about  manner,  is  without  effect,  for  there  are 
far  too  many  legitimate  distributors  to  make  it  neces- 
sary for  any  manufacturer  to  risk  the  good  reputation 
of  his  product  by  placing  it  in  the  hands  of  such  cut 
price  operators. 

In  short,  the  aggressive,  persistent  price  cutter 
stands  a  discredited  man  in  the  mercantile  community. 
He  is  a  bad  man.  The  opprobrious  epithets  which  he 
receives  are  but  his  just  due,  and  the  sooner  he  realizes 
his  true  position,  the  better  for  him. 

It  is  not  necessary  to  go  back  so  great  a  number 
of  years  to  recall  the  time  when  there  was  a  standard 
of  manufactured  products  which  was  universally  re- 
spected, but  by  the  work  of  the  price  cutting  manu- 

67 


% 


Price  Cutting 
Lowers  Standard 
of  Quality 


PRICE    MAINTENANCE 

facturer  and  dealer,  the  quality  of  many  lines  of  goods 
has  been  changed ;  the  standard  has  been  lowered,  and 
it  might  be  pertinent  to  cite  a  few  instances  illustrat- 
ing the  manner  in  which  the  consumer  has  suffered  in 
every  line  of  goods. 

Price  cutting  has  resulted  in  "size  faking." 
Articles  marked  12  qt.  and  supposed  to  have  that  actual 

capacity,   will   hold   but    IOI/2    quarts. 

The  goods  supposed  to  be  a  yard  wide 

would  be  found  to  measure  about  33 

inches.     The  goods  which  are  marked 

100  feet  will  measure  about  92  feet. 

In  the  wake  of  the  price  cutter  one  finds  that 

weight  faking  has  been  resorted  to  in  order  to  meet 

the  situation. 

Goods  are  made  of  lower  weight  material  than 
should  be  used,  and  other  subterfuges  are  resorted  to 
in  order  to  make  cheaper  goods  to  meet  price  condi- 
tions. 

Deception  in  connection  with  the  manufacture  of 
silver-plated  ware  has  been  carried  to  the  extreme.  In 
order  to  meet  the  constant  demands  for  lower  prices 
to  meet  the  quotations  of  price  cutters,  the  manu- 
facturers have  stamped  "Quadruple  Plate"  on  ware 
which  is  not  even  triple-plated;  they  have  marked 
goods  12  pwt.  which  are  only  about  8  pwt.,  and  so  on, 
ad  infinitum. 

There  are  numerous  illustrations  afforded  in  the 
furniture  business,  where  manufacturers  of  cheap 
goods  have  imitated  the  style  of  the  better  makers,  but 
have  used  inferior  interior  and  exterior  construction, 
veneers  instead  of  solid  wood,  bronze  plated  hardware 

68 


"X 


€ 


1  • 


CAUSE    AND    EFFECT 

instead  of  solid  bronze,  etc.,  and  there  are  manufactur- 
ers of  brass  bedsteads  who  have  kept  the  appearance 
of  the  better  goods,  but  who  substitute  brass  plating 
of  a  most  inferior  quality  instead  of  the  genuine  article ; 
manufacturers  of  textiles  turn  out  a  clever  mercerized 
piece  of  cotton  for  silk,  and  in  every  line  of  manu- 
facture numerous  analogous  cases  may  be  found. 

Many  of  these  crimes  may  be  laid  at  the  door  of 
the  price  cutter. 

After  a  manufacturer  has  achieved  success  in  the 
market,  with  an  article  of  superior  merit,  we  find  trail- 
ing after  him  a  horde  of  imitators  who  make  price 
their  chief  argument,  presenting  an  imitation  product 
with  which  they  hope  to  defeat  the  genuine  article. 

They  are  termed  in  the  trade  "Competitive 
Goods,"  but  the  consumer  is  the  sufferer,  in  that  he 
imagines  he  is  buying  a  good  article  at 
a  low  price,  but  he  is  really  buying  an 
article  made  to  sell  at  a  price,  and  really 
not  worth  the  price  paid.  Its  manu- 
facture has  been  made  necessary  be- 
cause those  engaged  in  the  business  have  made  the 
principal  argument  and  have  allowed  the  quality  to 
suffer. 

It  is  a  shame  that  the  consumer  must  be  the  suf- 
ferer, but  many  price  cutters  are  successful  in  deceiv- 
ing him,  leading  him  to  believe  that  he  is  buying  the 
genuine  article  or  an  article  of  equal  quality  at  a  very 
low  price,  when,  as  a  matter  of  fact,  he  is  only  buying 
a  rank  imitation  at  a  price  far  in  excess  of  what  it  is 
worth. 

These  price  cutters  imitate  the  genuine  articles 

69 


Ctoods  Whicb 
Are  Not 
Standard 


I 


ii 


Greater  Trade 
Honesty 


PRICE     MAINTENANCE 

in  every  point  except  the  quality.  The  name  has  often 
been  copied.  If  the  name  of  the  genuine  is  "Victor," 
they  have  been  known  to  call  it  "Hector"  and  disfigure 
the  first  two  letters  so  as  to  further  carry  out  the 
deception.  If  they  imitate  the  "Yale"  lock  they  call 
it  "Yawl"  until  the  court  steps  in  and  gives  them  a 
severe  trouncing. 

An  English  trade  journal  states  that  because  of 
false  trade  descriptions,  the  British  Brush  Manufactur- 
ers' Association  has  decreed  that  each 
firm  or  member  is  to  guarantee  that  the 
use  of  any  of  the  various  trade  descrip- 
tions in  connection  with  the  product  sold 
shall  mean  that  the  brush  or  broom  con- 
sists of  the  material  mentioned  in  the  description.  For 
instance,  "bristles"  must  mean  the  hairs  of  a  hog,  pig, 
or  boar;  "hair"  the  hairs  of  an  animal,  but  not  whale- 
bone or  feathers;  "badger"  or  the  name  of  any  other 
animal  means  the  hairs  of  the  animal  named.  This 
new  understanding  is  welcomed  as  an  important  step 
toward  purification  of  trade  and  greater  commercial 
honesty. 

Says  Mr.  R.  T.  Crane,  President  of  Crane  Com- 
pany, Chicago,  manufacturers  and  jobbers  of  steam 
and  plumbing  supplies,  in  a  recent  issue  of  their  house 
organ,  The  Valve  World: 

"This  curse  of  competition  naturally  manifests 
itself  in  the  quality  of  the  product,  illustrated  force- 
fully in  connection  with  plumbing  goods.  Probably 
the  least  inexcusable  thing  in  this  connection  is  the 
slighting  of  the  nickel  plating.  How  often  we  see  this 
to  be  the  case. 

70 


fr 


CAUSE    AND    EFFECT 

"What  is  there  that  looks  meaner  in  a  building 
than  to  see  the  plating  worn  off  the  bath  room  fix- 
tures? When  we  realize  the  great  expense  occasioned 
to  correct  this  fault,  and  the  small  cost  of  a  good  job 
in  the  first  place,  we  can  better  realize  how  contempti- 
ble the  manufacturer  is  who  will  produce  such  goods, 
and  how  equally  mean  and  contemptible  is  the  jobber 
who  encourages  the  making  of  such  goods." 

There  is  another  paragraph  by  Mr.  Crane  well 
worth  reading  under  the  head  of  "Competition  in 
Plumbing" : 

"We  know  of  nothing  more  stupid  in  the  plumbing 
line  than  to  cut  down  the  handles  of  wash  basin  cocks 
so  short,  in  order  to  cheapen  them,  as  to  make  them 
exceedingly  diflScult  to  operate.  We  have  known  of 
cases  where  the  handle  has  been  made  so  short  that  it 
was  almost  impossible  to  open  or  close  the  faucet,  and 
this,  all  for  the  sake  of  saving  a  penny  in  the  cost  of 
the  article.  This  is  one  example  of  the  many  unpar- 
donable evils  which  the  curse  of  competition  has  pro- 
duced." 

The  conditions  created  by  price  cutting  must  be 
met.     Raw  materials  must  be  bought  more  cheaply. 
Closer  bargains  must  be  driven  wher- 
ever possible.    All  allied  industries  are 
called  upon  to  revise  costs  to  meet  the 
demand  for  low  prices. 

The  workers,  men  and  women,  are 
ever  handy  victims  for  economy's  sake. 

Reduction  and  reduction  is  made,  with  sickening 
effect,  until  the  struggle  can  no  longer  be  endured,  and 
they  are  forced  to  seek  employment  in  other  lines. 

71 


The  Effect  of 
Price  Cutting 
on  the  Public 


't 

•I 


I 


i 


PRICE    MAINTENANCE 

True,  the  cost  of  production  is  lessened,  meeting 
for  a  time  the  demands  of  the  price  cutter. 

Then  there  is  the  sorry  picture  of  a  business  estab- 
lishment, be  it  factory,  mill  or  warehouse,  where  price 
cutting  has  robbed  the  business  of  its  profits. 

Naturally  the  equipment  is  poor.  A  losing  ven- 
ture has  to  do  the  best  it  can  with  the  worst  facilities. 
Safety  devices  are  unknown.  There  is  an  entire  ab- 
sence of  any  devices  to  protect  workers  from  injury  or 
death  from  dangerous  machinery,  belting  and  elevator 
shafts.  Here  the  price  cutter  is  the  indirect,  but  none 
the  less  responsible,  cause  of  an  appalling  number  of 
deaths  and  serious  injuries,  throwing  on  society  the 
burden  of  supporting  countless  maimed  or  crippled 
workers,  widows,  fatherless  and  orphans. 

Cut  prices  combined  with  dishonest  competition, 
have  driven  thousands  of  merchants  out  of  business, 

compelling  them  and  their  children  to 
seek  other  means  of  making  their  live- 
lihood. This  reduction  in  social  condi- 
tion and  welfare  is  most  unfortunate 
from  every  standpoint  and  does  not 
augur  well. 

Time  after  time  the  public  has  had  goods  foisted 
upon  it  which  were  utterly  worthless.  After  a  while, 
the  worm  has  turned  and  both  good  and  bad  brands  of 
the  goods  have  been  turned  down.  The  quality  had 
gone  down  to  a  point  where  it  was  worthless;  the 
public  received  the  impression  that  the  commodity 
itself  was  no  good  and  refused  to  consider  it  further. 

This  has  thrown  the  manufacturers  of  the  goods 
out  of  business.     It  has  made  it  necessary  for  the 

72 


Dealers  Driven 
Out  of  Business 


i 


|i: 


The  Meanest 

Man  Sets  the 

Pac« 


CAUSE    AND    EFFECT 

workers  in  such  an  industry  to  seek  employment  else- 
where in  lines  in  which  they  are  not  skilled,  at  a  con- 
siderably lower  rate  of  wages. 

More  and  more  the  chief  vocations  come  under 
the  baneful  effect  of  unfair  competition,  so  that  one 
may  not  maintain  one's  self  in  them  at 
all  unless  one  feels  at  liberty  to  do  as 
his  rivals  are  permitted  to  do. 

Those  in  the  same  line  must  to  a 
considerable  extent  move  in  lockstep, 
and  the  pace  is  set  by  the  meanest  man  who  is  allowed 
to  continue  in  the  business. 

There  are  men  occupying  positions  of  superin- 
tendence who  are  wholly  unfit.  Among  them  are  those 
who  are  dishonest,  ignorant,  malicious  and  crooked; 
those  who  prefer  methods  of  trickery  and  chicanery 
to  those  of  honorable  competition. 

A  ring  must  be  put  in  the  snout  of  these  greedy 
strugglers  for  "all  the  business  at  any  old  price,"  and 
when  properly  enlightened  and  aroused,  it  will  be 
done,  and  there  will  then  be  a  cessation  of  these 
forces  which  are  degrading  life  and  lowering  the  social 
condition  of  the  people. 


73 


i* 


I 


Too  Easy  to 
Secure  Position 
as  Salesman 


CHAPTER   VI. 

SALESMEN. 

The  salesman  without  experience  offers  a  para- 
mount difficulty  in  the  way  of  distributing  merchan- 
dise at  a  profit. 

Perhaps  a  reason  for  the  presence  of  such  a  large 
percentage  of  inexperienced  salesmen  in  the  field  is 

the  fact  that  mistaken  ideas  of  economy 
prevail  in  connection  with  the  employ- 
ment of  these  salesmen. 

For  example — a  case  like  this  is 
very  probable  and  has  accounted  for 
many  men  who  have  tried  the  road  at  the  houses'  ex- 
pense. A  friend  of  a  salesman  for  B.  &  Co.  learned 
that  A.  &  Co.  had  a  vacancy  for  a  traveler.  He  had  a 
smattering  knowledge  of  the  business  and  could  put 
up  a  fair  bluff.  He  had  been  making  $6.00  per  week 
and  was  ambitious.  He  applied,  expressed  confidence 
in  his  ability  to  sell  $50,000  per  annum,  and  to  his  sur- 
prise secured  the  position. 

Did  he  sell  it?  No!  But  he  lost  his  job  trying 
to,  and  jeopardized  the  jobs  of  several  other  much 

better  men.  He  "lived"  just  eight 
Errors  Common  ^^^^^hs,  but  he  cost  the  houses  covering 
to  Inexperienced  that  territory,  including  the  one  he  mis- 
Saiesmen  represented,  at  least  $5,000.    He  "made 

a  mistake"  in  naming  a  price  on  a  cer- 
tain line  of  goods  to  a  smart  buyer — a  little  matter  of 

74 


i 


) 


Demoralizing 

Effect  of  Poor 

Salesmanship 


SALESMEN 

10%,  and,  like  the  commotion  caused  by  throwing  a 
stone  into  a  great  lake,  its  force  was  felt  from  shore  to 
shore.  His  house  had  some  "old  contract"  goods  of 
this  line,  and  let  it  pass. 

Several  other  travelers  were  shown  the  price  on 
A.  &  Co.'s  invoice  to  the  customer,  and  reported  the 
matter  to  their  several  houses.  Each 
of  them  had  some  "old  contract"  goods 
of  this  line  also,  and  each  salesman  was 
authorized  to  use  his  judgment  and  al- 
low the  10%  extra  where  necessary.  Of 
course,  the  salesman  whose  customers  seem  to  be 
natural  allies,  gives  the  10%  broadcast,  as  is  generally 
the  case  where  a  lower  price  is  made  conditioned  on 
meeting  some  certain  specified  competition.  It  is  won- 
derful how  prevalent  and  general  that  particular  com- 
petition suddenly  becomes. 

Our  friend  of  the  illustration  was  an  amiable  fel- 
low and  preferred  to  do  right,  but  like  those  of  that 
class  he  so  well  typified,  he  was  ignorant,  and  his 
costly  errors  were  born  of  ignorance  and  not  fathered 
by  malice,  yet  they  were  none  the  less  costly  for  that. 

Far  better  would  it  be  for  the  cause  of  fair  profits 
and  the  expense  account  if  greater  care  were  exercised 
in  placing  men  on  the  road. 

Experience  shows  that  out  of  every  ten  men  placed 
on  the  road  to  sell  goods,  but  one  is  sufficiently  suc- 
cessful as  to  justify  his  continuance,  and  but  one  out 
of  twenty  experiments  is  a  profitable  man. 

In  fact,  many  houses  having  fifteen  or  twenty 
salesmen  claim  that  only  four  or  five  show  a  good 
profit. 

75 


•..1' 


■ 

I 


*  • 


An.  Examination 
Suggested  for 
Applicants  for 
Position  as 
Salesmen 


PRICE    MAINTENANCE 

By  the  way  of  a  remedy  for  this  cankerous  evil, 
why  not  require  a  careful,  painstaking  examination 
of  the  fitness  of  each  applicant  for  the  traveler's  posi- 
tion? 

Possibly  what  the  trade  chiefly  desires  is  a  thor- 
ough knowledge  of  the  business,  a  good  record  as  a 

man  of  stability,  strong  character  and 
backbone,  energy,  enthusiasm,  good 
health  and  morals,  honesty,  sobriety 
and  a  man  who  has  not  been  known  as 
a  "bear  on  the  market"  with  other 
houses.  If  he  is  a  "price"  competitor  and  claims  he 
could  sell  goods  "if  he  only  had  the  price,"  do  not  take 
him  on,  because  prices  have  never  been  known  to  be 
low  enough  yet  to  suit  a  man  of  his  type. 

Quality  of  the  selling  force  in  this  respect  excels 
quantity  every  time,  and  if  quality  is  insisted  upon  by 

a  thorough  examination  and  weeding 
out  process,  we  would  see: 

1st.     A  great  saving  in  the  expense 
account. 

2nd.  A  better  profit  on  all  goods 
sold  and  a  better  quality  of  goods  sold. 

3rd.     A  larger  mail  order  trade. 

4th.  Instead  of  orders  for  i/i  and  14  dozen  of 
each  article  purchased,  the  orders  would  be  for  1 
4ozen,  14  gross  and  14  gross. 

5th.    A  saving  of  boxing  and  packing  expense. 

6th.     A  saving  of  cartage  expense. 

7th.    A  better  salary  for  the  salesman. 

76 


Economies 
Effected  by 
€k>od 
Salesmansliip 


i 


SALESMEN 

The  Salesman  Without  Sense  or  Good  Judgment. 

The  salesman  without  good  judgment  is  a  develop- 
ment of  the  salesman  without  experience,  in  that  he 
has  not  learned  to  benefit  by  his  experience. 

It  is  astounding  to  meet  so  many  salesmen  (so- 
called  through  courtesy)  who  are  almost  innocent  of 
any  knowledge  of  the  business  in  which  they  are  en- 
gaged; who  are  sometimes  deficient  in  rudimentary 
business  methods  and  to  whom  salesmanship  is  an  un- 
known art.  Possibly  but  50%  of  the  whole  are  first- 
class,  competent  salesmen,  truly  deserving  of  the 
name. 

A  dangerous  class  of  salesmen  are  those  who 
should  make  their  living  in  other  pursuits. 

They  may  be  well  fitted  to  shoe  horses,  paint 
barns  or  even  to  juggle  freight  at  a  station,  but  to  sell 
goods,  NEVER. 

To  sell  goods  at  the  prices  at  which  they  are 
given,  they  know  as  little  about  as  does  a  rat  about 
astronomy. 

To  them,  selling  goods  is  no  art  at 
all,  for  a  dollar  or  two  above  invoice 
cost  is  all  "velvet,"  money  that  comes 
as  easy  as  a  check  from  home. 

Many  salesmen,  again,  are  temperamentally  weak 
in  asking  a  price  which  bears  a  profit,  and  are  responsi- 
ble for  the  commencement  of  demoralization  in  many 
instances. 

Those  who  lack  confidence  in  their  ability  to  sell 
at  an  equal  or  better  price  than  their  competitors,, 

77 


Poor  Salesmen 
Dangerona 


I 


PRICE    MAINTENANCE 

seek  the  line  of  least  resistance,  viz.,  a  concession  in 
price,  to  effect  their  sales. 

Persistence  in  this  course  leads  to  their  final  elim- 
ination  from  the  selling  ranks,  but  before  this  takes 
place  such  men  may  occupy  positions  with  many 
houses,  unknowingly  being  permitted  to  ply  their  dan- 
gerous course  for  some  time,  costing  their  hopeful 
employers  more  during  the  year  than  is  lost  in  bad 
debts. 

It  must  be  remembered  that  salesmen  only  hear 
complaint  of  the  prices  which  are  said  to  be  high, 
while  the  low  prices  pass  without  criticism  or  com- 
ment. 

The  salesmen  of  the  present  time,  as  a  rule,  should  ' 
possess  large  abilities.     A  great  many  of  them  lack 
patience  and  that  nerve  which  is  required  when  sell- 
ing a  bill  of  goods,  to  pass  by  a  few  items  where  the 
price  is  too  low. 

One  who  is  inclined  and  allowed  to  cut  a  few 
prices  occasionally,  will,  without  noticing  it,  cut  his 

prices  to  the  amount  of  $3.00  per  day, 
which  at  the  end  of  the  year  reduces 
his  showing  in  profits  about  $900.00. 
Have  you  never  thought  about  it  that 
way? 

A  little  careful  consideration  before  a  cut  is  made 
would  convince  the  sales  manager  that  the  majority  of 
these  cuts  are  unnecessary  and  besides,  are  not  appre- 
ciated by  the  trade  or  the  consumer. 

Salesmen  can  help  to  increase  profits  by  not  over- 
estimating the  knowledge  the  customer  has  of  values. 
Because  some  customer  seems  well  posted  on  staple 

78 


Iilttle  Cuts 
Count 


! 


SALESMEN 

goods,  perhaps  the  salesman  will  cut  the  price  of  slow 
selling  specialties  unnecessarily  low,  if  permitted  to 
do  so  by  the  sales  manager. 

This  is  an  error  in  judgment  which  will  soon  be 
remedied  by  an  appreciation  on  the  part  of  the  sales- 
man that  every  such  error  cuts  his  profit  account  down 
and  that  if  it  does  not  have  a  direct  effect  on  his  salary 
at  once,  the  accumulation  of  such  errors  must  make 
him  less  valuable  to  his  house  and  will  be  reflected  in 
his  salary. 

A  great  deal  of  profit  is  thrown  away  by  a  sales- 
man not  being  familiar  enough  with  his  line  of  goods ; 
but  a  salesman  should  know  not  only 
his  own  line  thoroughly,  but  also  suf- 
ficient of  his  competitor's  line  to  help 
him  handle  conditions.  A  salesman 
very  often  has  a  first-class  article  to 
sell  at  a  certain  price,  and  it  is  cheap  at  that  price, 
but  his  competitor,  who  has  an  inferior  article  some- 
what similar,  has  a  lower  price,  and  the  salesman  not 
knowing  his  own  line  or  that  of  his  competitor,  cuts 
the  price  of  the  first-class  article  to  compete  with  the 
inferior  articles,  and  thus  throws  away  some  good 
legitimate  profit  that  his  house  is  entitled  to.  He 
should  study  the  line  as  much  as  possible  and  so  demon- 
strate the  quality  of  the  product  as  to  put  the  question 
of  price  in  the  background. 


Knowing  the 


79 


-••^ 


i 


**Big"  or 

"Close*' 
Buyers 


CHAPTER  VII. 

'^  BUYERS. 

There  is  a  class  of  buyers  on  all  territories  who 
enjoy  the  distinction  of  being  called  "close  buyers." 
:  They  are  generally  a  terror  to  a  great 
many  salesmen,  some  of  them  even  have 
such  a  reputation  in  the  territory  that 
you  will  meet  salesmen  who  say  they 
would  like  to  sell  so  and  so  goods,  even 

IF  THEY  HAD  TO  SELL  THE  GOODS  BELOW  COST.     It  is  safe 

to  say  that  it  is  with  the  so-called  close  buyers  the  fool- 
ish salesman  loses  most  of  his  profit.  These  close 
buyers  are  not  as  dangerous  as  they  look,  and  the  great 
majority  of  them  are  not  even  a  good  match  for  an 
ordinary  "chump"  salesman.  If  the  salesman  is  on  his 
guard,  he  will  quite  frequently  be  surprised  to  find 
that  some  of  the  so-reputed  close  buyers  are  quite 
ignorant  both  as  regards  goods  and  prices.  If  one 
should  divide  the  cause  of  sacrificing  profits  between 
these  close  buyers  and  the  salesmen,  surely  the  sales- 
men would  come  in  the  big  end  of  it,  for  it  is  quite  often 
the  case  that  all  the  close  buyer  has  to  do  is  to  push 
the  button  and  the  salesman  will  do  the  rest  and  throw 
himself  away,  profit  and  all. 

The  big  buyer  is  a  good  customer  just  as  long 
as  there  is  a  fair  profit  on  his  purchases,  but  as  soon 

80 


BUYERS 

as  it  becomes  necessary  for  you  to  give  him  half  of 
your  regular  margin,  he  ceases  to  be  desirable. 

Misrepresentation  of  Buyers. 

The  buyer,  in  his  desire  to  obtain  the  lowest  possi- 
ble price  and  the  greatest  concessions,  resorts  to  every 
known  subterfuge  to  effect  his  purpose. 

That  this  is  not  a  new  condition,  but  even  con- 
fronted Solomon  when  he  reared  that  wonderful  tem- 
ple, is  shown  by  the  following  quotation  from  Proverbs 
xx:  14: 

*'It  is  naught,  it  is  naught,  saith  the  buyer;  but 
tvhen  he  is  gone  his  way,  then  he  boasteth" 

In  nine  cases  out  of  ten,  when  a  buyer  questions 
prices,  he  is  merely  testing  the  salesman's  nerve. 

If  he  should  yield  just  once,  and  the  house  be  lax 
enough  to  permit  it,  he  is  "done  for"  on  price-getting 
with  that  buyer  as  he  travels  on  that  territory. 

A  shrug  of  the  shoulders,  a  remark  which  would 
lead  to  the  inference  that  the  price  quoted  is  too  high, 
or  the  lie  direct — leads  to  price-cutting 
not  warranted  by  the  true  facts,  but 
demoralizing  in  its  influence. 

The    buyer   or   purchasing   agent 
often  feels  that  he  must  maintain  his 
position  by  virtue  of  his  ability  to  bear  down  prices. 
He  employs  methods  of  cunning  which  go  far  to  mis- 
lead the  salesman  and  to  convey  the  impression  that 
his  prices  are  grossly  excessive. 

The  effect  of  such  statements  varies,  but,  as  mer- 
chants, you  are,  no  doubt,  aware  that  the  proportion 
of  salesmen  in  the  employ  of  houses  handling  the 

81 


Buyer 

Naturally 

Misrepresents 


mf 


I 


PRICE     MAINTENANCE 

various  lines,  who  can  be  called  really  first-class 
men  in  their  profession,  is  less  than  fifty  (50%) 
per  cent,  of  the  whole;  and  that,  even  the  first-class 
man  is  frequently  forced  to  make  a  price  entirely  con- 
trary to  his  own  judgment  and  wishes,  by  the  actions 
of  others  who  are  lacking  in  the  essentials  of  sales- 
manship. 

The  average  salesman  does  not  have  sufficient 
backbone  to  sustain  confidence  in  himself  or  his  prices, 
and  when  the  buyer  makes  a  remark  such  as,  "You 
are  not  in  it;  better  go  home  and  get  posted,"  he  should 
have  the  backbone  to  "spruce  up,"  stick  to  his  price  and 
refrain  from  cutting. 

Then  when  another  point  of  attack  is  chosen,  the 
buyer  will  often  assume  a  friendly  attitude,  saying, 
"Sorry,  Bill,  but  your  figures  are  too  high  again;  I 
would  like  to  give  you  the  business,  but  your  people 
are  always  about  10  per  cent,  higher  than  the  other 
fellow." 

Here  the  salesman  sees  that  he  has  the  good  will 
of  the  buyer  and  the  offer  of  the  business.  Pretty 
tempting,  too.  He  recognizes  that  the  only  obstacle 
between  him  and  the  coveted  order  is  the  refusal  of 
his  house  to  meet  prices. 

There  are  also  constantly  occurring  the  cases 
where  the  buyer  takes  advantage  of  an  error  in  billing 
or  shipping  goods  to  make  out  a  "prima  facie"  case  of 
lower  prices  being  quoted.  Then  there  is  the  run  of 
cases  where  the  easy  sales  manager  passes  orders 
secured  at  cut  prices  by  new  salesmen  so  as  not  to 
discourage  the  inexperienced  man  and  so  as  to  avoid 
going  back  on  his  contract  with  the  customer. 

82 


The  Effect  of 

Misrepresenta^ 

tion  on  the 

Salesman 


BUYERS 

The  salesman  is  human,  and  as  no  other  repre- 
sentative of  the  house  is  present  to  talk  matters  over, 
and  he  is  out  to  get  business,  he  is  ready 
to  collapse  when  the  buyer  adopts  such 
tactics  as  these.  He  at  once  gets  a 
"crimp"  in  his  backbone  and  seeks  re- 
lief by  cutting  prices,  unless  he  knows 
that  his  sales  manager  is  not  the  man  to  countenance 
such  a  practice.  If  he  has  a  sales  manager  who  is 
strong  on  the  price  question,  insistent  upon  obtaining  a 
proper  schedule  of  prices  or  passing  the  business,  he 
will  stand  his  ground  and  either  land  the  order  through 
the  power  of  salesmanship  and  the  virtue  of  his  goods, 
or  he  will  pass  the  business,  leaving  the  crafty  buyer 
to  try  his  wiles  on  some  other  weaker  brother  who  has 
not  the  backing  of  such  an  efficient  sales  manager. 
Then  on  the  next  trip  does  it  not  often  happen  that  the 
order  has  not  been  placed,  and  the  salesman  has  the 
satisfaction  of  securing  it  at  the  regular  price  and  of 
knowing  that  his  undeviating  one-price  policy  has  won 
out? 

The  remedy  for  such  misrepresentation,  obstruct- 
ing as  it  does  the  smooth  operation  of  a  price  mainten- 
ance system,  is  organization  among  the  sellers  and  co- 
operation of  the  manufacturers. 

Through  this  means  of  communication  mutual  con- 
fidence is  inspired  between  the  sellers  locally  and  be- 
tween those  in  different  sections,  mak- 
ing the  investigation  of  reports  of  cut     ^^q^^s  ^f  q^^ 
prices  easy  and  satisfactory.  Prices  Should 

The  practice  of  rigidly  investigat-  Be  investigated 
ing  reports  of  cut  prices  and  ferreting 

83 


1 


/! 


PRICE    MAINTENANCE 

out  the  facts  to  their  source  has  resulted  beneficially, 
and  where  it  is  followed,  the  incorrect  reports  of  sales- 
men and  customers  no  longer  stand  by  default. 

Mere  suspicions  and  veiled  insinuations  cannot  in- 
fluence prices  when  a  salesman  knows  that  the  buyer's 
statements  will  be  accepted  as  correct  only  after  a 
rigid  investigation.  Positive  proof  showing  cold  facts 
and  undeniable  evidence  will  be  demanded  before  they 
are  submitted  to  the  sales  manager  as  a  matter  of 
information,  for  he,  better  than  any  one  else,  is  in  a 
position  to  know  whether  any  change  should  be  made. 

Get  the  True  Facts. 

It  might  throw  just  a  little  light  on  the  subject  to 
define  what  a  fact  really  is. 

A  fact  is  that  which  really  exists;  it  is  a  statement 
which  is  absolutely  true  and  which  will  be  fully  con- 
firmed by  close  investigation. 

Pride  (perhaps  mistaken)  enters  into  the  ques- 
tion. Every  one  wants  to  feel  that  his  prices  are  as 
good  as  any  or  all  of  his  competitors,  but  the  trouble 
is,  that  he  seldom  knows  to  a  certainty  what  such  com- 
petitors' prices  are,  and  is  prone  to  take  for  granted 
statements  that  are,  in  the  main,  garbled  and  ofttimes 
very,  very  wide  of  the  truth. 

In  the  salesman's  case,  he  often  takes  the  buyer's 
statement  or  inference  as  a  fact,  and  he  may  in  some 
way  be  led  to  believe  that  a  certain  competitor  is 
quoting  10%  lower. 

Years  of  investigation  have  revealed  the  fact  that 

84 


'> 


I 


{# 


Over  90  Per  Cent 

of  Reports  of 

Cut  Prices 

Incorrect 


BUYERS 

an  average  of  over  90%  of  the  reports  of  cut  prices  are 
found  to  be  incorrect  and  inaccurate, 
and  to  have  no  foundation  in  fact. 

This  is  a  big  average!  Just  think 
of  it— 90%!!  Of  course,  many  of  the 
statements  of  the  buyers  are  not  bald, 
bare-faced,  copper  riveted  lies,  but  they  are  clever  little 
exaggerations,  over  statements,  and  statements  from 
which  inferences  may  be  drawn. 

The  buyer  is  paid  to  get  the  goods  at  the  lowest 
possible  figure.  He  may  be  a  fine  man,  as  honest  as  the 
day  is  long,  but  the  best  of  men  and  customers  are  apt 
to  make  the  most  of  a  statement  so  long  as  it  serves 
their  ends  and  gets  their  goods  cheaper  for  them. 

Most  of  us  luckily  are  inclined  toward  optimism, 
and  some  of  us  do  not  seem  to  remember  that  the 
inclination  of  mankind  is  to  exaggerate  if  only  a  trifle. 

Then  when  the  report  of  a  cut  price  is  made  to  the 
sales  manager  and  he  looks  incredulous,  we  should 
not  get  "sore"  at  him,  because  he  has  heard  the  old, 
old  story  so  many  times,  and  too  often  he  has  proven 
conclusively  that  the  report  of  the  cut  price  which  the 
salesman  considered  a  fact  was  not  a  fact 

Perhaps  the  fact  was,  that  the  price  was  an  old 
one  which  had  been  withdrawn ;  or  that  he  found  the 
price  was  on  a  job  lot  of  goods.    Maybe 
he  found  that  it  was  "Bargain  Day" 
with  some  other  dealer  or  dealers  who    ^*  ^^^^  ^^'^ 
were  heavily  overstocked,  and  that  the     ^  Withdrawn 
price  was  for  a  certain  large  quantity 
of  goods,  being  surrounded  by  all  kinds  of  special  con- 
ditions.   Or,  it  may  have  been  that  the  price  was  made 

85 


II 


II 


II 


I 


I 


PRICE    MAINTENANCE 

by  a  "green-hom"  salesman  and  that  the  order  was 
filled  merely  to  keep  good  faith  with  the  customer,  but 
immediately  withdrawn  by  the  house. 

In  cases  like  these,  it  was  a  fact  that  the  prices 
WERE  made,  but  is  it  not  pertinent  to  ascertain  the 
other  elements  in  connection  with  the  circumstances 
under  which  the  prices  were  named  so  that  profits 
should  not  be  needlessly  sacrificed? 

Investigate  closely  as  to  the  merchant's  sincerity 
in  making  the  statement  in  case  of  a  report  of  lower 
price.  There  should  be  considered  such  points  as  date 
of  order,  quality,  quantity  on  which  price  was  made, 
freights  and  deliveries,  fluctuations  in  prices,  closing 
out  prices,  damaged  or  second-hand  goods,  etc.,  etc. 

The  purport  of  this  little  talk  is,  to  get  ALL  THE 
FACTS.  Not  only  the  part  of  the  story  used  by  the  cus- 
tomer in  order  to  beat  down  the  price,  but  get  the 
whole  story,  and  you  will  probably  find  that  your  house 
is  selling  goods  on  as  low  a  basis  as  any  other  house, 
and  that  the  customer  is  simply  trying  to  display  his 
ability  as  a  buyer  to  unsettle  the  market. 

It  should  be  borne  in  mind  that  these  customers 
tell  the  salesman  of  other  houses,  the  same  class  of 
"fish  stories"  as  they  tell  you. 

The  other  salesmen  on  the  road  probably  think 
that  you  are  about  as  big  a  cutter  as  you  think  they 

are. 
Each  Man  "^^^  remedy  for  this,  is  a  little 

Blames  the  other  stronger  belief  in  the  honesty  of  the 
for  Cutting         purpose  of  your  competitors,  and  a  far 

closer  investigation  into  the  statements 
of  the  buyers. 

86 


V 


BUYERS 

It  is  a  sure  thing  that  if  we  accept  all  such  state- 
ments as  each  salesman  makes  to  his  house  of  certain 
prices,  that  the  prices  will  get  lower  and  lower  and 
that  a  beautiful  crimson  banner  with  nice  white  letters, 
"Sheriff's  Sale  This  Day"  on  it  will  be  hanging  out  on 
the  door  some  fine  morning. 

The  fact  is  repeated  that  salesmanship  means 

SELLING  GOODS  AT  A  PROFIT. 

Selling  goods  at  a  profit  is  impossible  if  we  are 
gullible  and  believe  all  that  every  buyer  tells  us. 

Do  not  beg  your  house  for  permission  to  cut  the 
price,  but  either  sell  the  goods  at  your  own  price,  or 
do  not  believe  the  buyer's  statements  unless  he  can 
back  it  up  with  satisfactory  evidence.  Also,  just  be- 
cause you  hear  the  same  report  in  three  or  four  differ- 
ent places,  it  doesn't  follow  that  it  is  true,  but  find  out 
all  about  it — ^then  you  will  know. 

It  is  easy  for  the  salesman  to  believe  the  buyer 
when  he  says,  "Your  prices  are  not  right,  but  I  would 
like  to  give  you  the  business,  were  it  not  for  the  fact 
that  I  think  I  can  do  better."  Or,  perhaps  he  will  say, 
"I  can  do  better."  But  remember,  nine  times  out  of  ten 
he  cannot,  and  if  you  give  in  he  has  the  laugh  on  you. 

It  probably  has  been  the  experience  of  many  sales- 
men to  be  in  a  buyer's  office  when  he  is  telephoning  to 
one  of  his  sources  of  supply  and  trying 
to  get  them  to  give  him  a  lower  price. 

He  puts  up  the  best  kind  of  a  story 
he  can,  and  when  he  has  them  coming 
his  way,  he  winks  his  eye  at  you  and 
says,  "I  have  put  *one  over  on  them,'  all  right,"  and 
then  the  wonder  of  it  all  is,  that  so  many  times  you 

87 


The  Foxy 
Buyer 


i 


PRICE    MAINTENANCE 

permit  him  to  "put  one  over  on  you"  about  ten  minutes 
later. 

Do  not  get  scared ;  do  not  stampede.    Remember 

there  are  only  two  of  you— the  buyer  and  yourself 

and  if  he  makes  any  statement  which  sounds  somewhat 
fishy,  investigate  it. 

It  has  been  said  that  if  a  theatre  gets  on  fire  with 
2,000  people  in  it,  all  stampede  for  the  door,  but  if 
only  three  or  four  people  are  there,  they  look  for  the 
fire  and  try  to  put  it  out. 

You  are  in  the  same  position.  There  are  but  two 
of  you.  If  there  are  claims  of  lower  prices  made  by 
the  buyer,  do  not  stampede— just  look  around  and  find 
out  whether  it  is  a  true  fact  or  a  creation  of  an  over- 
worked, imaginative  brain. 

An  unfortunate  feature  in  connection  with  the  in- 
vestigation of  reports  of  cut  prices  is  the  failure  of  the 
party  in  the  accused  house  who  is  approached  in  the 
matter  to  keep  the  fact  of  the  report  confidential. 

It  is  unwise  to  allow  the  report  to  get  back  to  the 
customer,  but  too  often  this  is  the  case.    This  results 

in  a  probable  loss  of  business  to  the 
Investigation  of  house  which  has  been  trying  to  main- 

Confidential  P^^^  possibly  risking  the  loss  of  $2,000 

or  $3,000  of  business  per  annum  for  a 
report  of  a  cut  price  on  $20.00  worth. 

If  the  one  consulted  were  to  investigate  with 
proper  caution  and  with  a  correct  regard  for  the  inter- 
ests of  the  trade,  this  method  would  be  far  safer  than 
it  is  now. 

88 


}{ 


BUYERS 
Lying. 

As  it  has  been  proved  true  that  over  90  per  cent, 
of  reports  of  cut  prices  are  not  founded  on  fact,  is  it 
not  time  that  this  disgusting  practice  of  misrepre- 
sentation should  stop? 

What  are  the  consequences?  Have  not  lies  been 
told  without  advantage?  Have  not  men  bartered  their 
manhood  for  naught?  Have  the  parties  reaped  any 
advantage  that  they  would  not  have  obtained  by  ad- 
hering to  the  straightforward  truth? 

The  consequences  are,  that  these  men  have  need- 
lessly added  their  influence  to  diminish  confidence  be- 
tween man  and  man.  They  have  sown 
the  seeds  of  deception  and  dishonesty, 
which  may  grow  up  to  be  rank  weeds 
and  poison  themselves.  They  have 
given  additional  cause  for  the  contempt 
of  honorable  men  who  abhor  such  practices. 

Is  lying  necessary  in  buying  or  selling?  This 
question  needs  but  a  short  answer ;  if  it  is,  then  buying 
and  selling  are  sinful,  which  is  absurd.  Many  of  the 
assertions  in  bargaining  are  mere  badinage;  they  are 
the  substitutes  for  want  of  something  better  to  say, 
and  are  generally  an  indication  of  poverty  of  wit. 

Many  of  the  falsehoods  in  trade  are  about  irrelev- 
ant matters,  not  pertinent  to  the  bargain. 

Cost  is  a  matter  never  pertinent  to  a  sale.  It  is 
not  to  be  presumed  that  a  man  who  is  in  his  right  mind 
is  selling  at  cost,  and  what  he  paid  for  his  goods  is  an 
interesting  inquiry  of  no  practical  importance. 

Lying  seems  to  be  a  natural  defect  in  some  men, 

89 


Misrepresenta- 
tion Futile  and 
Wrong 


It!'  I 


) 


( 


i 


PRICE     MAINTENANCE 

and  must  be  viewed  in  the  same  light  as  the  well-known 
natural  propensity  for  stealing.  In  others  it  is  a  con- 
firmed habit;  they  have  lied  so  long  and  so  often  that 
it  has  become  a  second  nature  to  them.  Loquacious 
men  cannot  always  command  the  time  necessary  to 
stop  and  recollect  the  truth. 

Now  then,  is  it  not  evident  that  in  no  instance  is 
the  ability  to  lie  a  qualification  of  a  good  buyer  or  an 
expert  salesman,  and  is  it  not  time  to  abandon  this 
most  unhealthy  practice? 

It  is  not  to  be  expected  that  any  ideal  conditions 
will  soon  exist,  but  observation  immediately  reveals 
the  fact  that  a  great  improvement  has  taken  place  in 
this  respect.  Business  men  from  the  standpoint  of 
policy,  irrespective  of  morals,  have  found  misrepre- 
sentation to  be  inadvisable  and  unprofitable. 


Ml 


\ 


CHAPTER  VIII. 

LEADERS. 

Prices  which  are  too  low  for  profit  are  often  made 
as  a  leader  or  "bait"  to  secure  the  trade  of  some  one 
or  a  number  of  customers.  A  "leader"  is  sometimes 
defined  as  a  piece  of  goods  placed  on  sale  at  a  very  low 
price  to  attract  the  attention  of  the  trade  and  impress 
upon  it  the  idea  that  the  establishment  in  question  has 
very  low  prices  in  general. 

Articles  serve  best  as  leaders  which  are  recognized 
staples  or  widely  advertised  goods  which  are  in  heavy 
demand.  Advertised  goods,  well  known  to  the  trade, 
and  whose  identity  is  thoroughly  established,  rapidly 
become  the  "footballs"  of  trade,  unless  a  strong  effort 
is  made  by  the  manufacturers  to  control  the  price  at 
which  such  goods  shall  be  sold. 

There  is  no  direct  profit  to  the  trade  in  "leaders," 
since  they  must  be  sold  at  or  near  cost,  and  the  articles 
which  can  readily  be  identified  by  the  trade  are  most 
largely  used  because  the  identity  gives  force  to  the 
price  difference. 

If  there  were  not  identity,  the  seller  who  was 
securing  a  fair  price  would  probably  claim  that  the 
difference  in  quality  accounted  for  the  difference  in 
price. 

91 


i 


I  1 


ui 


Widely  Known 
Oooda  Cut  Most 


PRICE    MAINTENANCE 

Consequently,  the  heavy  selling  staples  and  well- 
known  and  widely-advertised  goods,  which  carry  trade- 
marks everywhere  known,  serve  more 
or  less  as  leaders ;  that  is  to  say,  many 
of  them  do  not  yield  satisfactory  profits 
because  of  the  directness  of  competition 
with  respect  to  them. 
Said  a  representative  of  one  of  the  largest  retail 
establishments  in  the  United  States  in  discussing  the 
question  of  price  cutting: 

"The  dealer  who  selects  certain  trade-mark  arti- 
cles of  large  demand  and  places  them  on  sale  for  a  day 
or  two  each  month,  at  a  price  on  which  there  is  no 
profit,  and  at  times  actual  loss,  has  three  reasons  for 
his  action : 

"First.  To  deceive  the  public  as  to  his  prices  on 
other  goods  not  so  well  known. 

"Second.  To  attempt  to  cast  reflection  upon  the 
prices  of  a  competitor  by  taking  a  false  position  him- 
self. 

"Third.  To  damage  the  market  value  of  the  trade- 
marked  article. 

"If  there  is  a  better  reason  for  such  action,  with 
an  article  that  cannot  be  bought  from  the  manufactur- 
er at  less  than  its  regular  price  at  any 
time,  I  would  like  to  know  it.  If  reason 
number  one  is  analyzed  to  its  bottom,  it 
is  as  damaging  to  the  public  as  it  would 
be  to  sell  to  the  Government  ten  cases  of 
goods,  in  one  case  of  which  fair  weights  and  measures 
were  given,  and  a  deal  made  with  the  inspector  to  ex- 
amine only  that  one  case,  the  other  nine  cases  of  goods 

92 


An  Interesting 
Analogy 


LEADERS 


being  measured  and  weighed  at  thirty  inches  to  the 
yard,  or  twelve  ounces  to  the  pound. 

"In  the  first  case  the  customer  is  able  to  measure 
the  value  of  the  trade-marked  article,  while  being  led 
to  purchase  an  unknown  number  of  other  articles  which 
are  not  so  measured,  with  the  belief  that  they  are  pur- 
chased on  the  same  low  basis  of  profit.  Thus  the  pur- 
chaser is  just  as  falsely  misled  as  though  an  inspector 
was  bribed  to  measure  ten  cases  of  merchandise  upon 
the  exaggerated  basis  of  the  case  specially  prepared 
for  his  examination. 

"The  time  will  undoubtedly  come,  if  honesty  in 
business  policy  is  to  prevail,  when  it  will  be  as  much 
against  the  law  to  falsely  exploit  a  standard  article  at  a 
loss,  as  it  is  to  sell  goods  at  a  short  pound,  or  a  short 
yard.  It  would  seem  that  the  time  will  come  when  it 
will  be  against  the  law  for  any  storekeeper  to  mali- 
ciously use  the  manufacturer's  product  in  a  way  that 
not  only  deceives  the  public,  but  does  damage  to  the 
honest  storekeeper,  as  well  as  the  manufacturer  of  the 
article. 

"Certainly  that  public  must  be  very  ignorant 
which  does  not  realize  that  when  one  line  of  goods  ia 
sold  below  cost  another  must  be  sold  proportionately 
above  it  to  make  up  the  deficit." 

The  "bait"  or  leader  business  is  what  plays  the 
devil  with  prices  and  profits.  I  think  there  is  nothing^ 
to  be  gained  by  tempting  a  customer  with  a  bait  to  buy 
an  article  he  don't  need  just  to  start  an  order.  There 
is  always  a  reaction  that  is  bad.  If  you  overcharge 
him  on  other  goods,  he  will  find  you  out  surely. 

I  don't  think  it  pays  to  start  an  order  with  a  bait^ 

.    93 


Too  Many 
Iieaders  Spoil 
Profits 


PRICE    MAINTENANCE 

A  customer  generally  finds  it  out.  The  next  salesman 
finds  it  out  from  him  and  makes  the  price  equal  or 
better  than  yours.  Soon  the  price  spreads  and  renders 
profitless  scores  of  items. 

Try   only   straight   business   at   regular   honest 
prices.    It  will  prove  to  be  a  winner  in  the  end. 

By  the  time  all  the  special  prices  for  a  special  pur- 
pose, or  for  no  purpose  at  all,  are  given  the  trade,  they 

embrace  all  the  leading  goods.  The 
trade  is  then  firmly  established  on  a 
basis  of  cut  prices  on  all  leading  lines 
and  the  jobber  finds  himself  in  the 
pleasant  (?)  but  unprofitable  business 
of  swapping  dollars  for  the  advancement  of  the  inter- 
ests of  manufacturers  and  retailers  and  consumers. 

It  is  certain  that  a  good  salesman  can  sell  goods 
without  the  aid  of  leaders,  and  can,  by  exercising 
patience  and  energy,  break  into  the  most  exclusive 
territory,  simply  with  his  ability  as  a  salesman  and 
the  merit  of  the  goods  which  his  house  sells  to  recom- 
mend him.  Goods  quoted  below  the  market  will  sell 
themselves,  and  a  "non  compos  mentis"  can  book  the 
orders.  A  good  salesman  should  never  ask  for  a 
lower  price  than  that  of  his  competitors,  but  with 
honor  he  should  be  willing  to  fight  the  fight  for  busi- 
ness in  the  open  field,  and  if,  at  the  end  of  the  year, 
he  finds  that  his  competitor  has  sold  more  goods  than 
he  has  in  the  same  territory,  he  should  be  willing  to 
recognize  his  superior  ability  as  a  salesman  and 
should  admit  that  he  should  receive  a  greater  salary. 
But,  on  the  other  hand,  if  his  house  is  continually  per- 
mitting him  to  offer  bait  to  the  trade,  which  he  is 

94 


LEADERS 

either  unable  or  unwilling  to  meet,  and  in  this  way 
he  secures  a  greater  amount  of  business,  none  can 
recognize  him  as  a  superior  salesman,  nor  can  his 
house  be  respected  as  an  honorable  competitor,  for 
they  have  simply  robbed  others  of  legitimate  profits, 
which  should  have  been  theirs,  and  by  so  doing  have 
not  increased  their  own  profits.  It  would  be  well  if 
business  men  would  look  to  the  "prize  ring"  for  an 
object  lesson,  and  whenever  one  of  their  number  is 
found  guilty  of  striking  below  the  belt,  he  should  be 
made  to  suffer  the  penalty.  If  the  salesman  is  at 
fault,  discharge  him,  but  if  the  fault  is  with  the  job- 
ber discipline  him. 

In  the  retail  business  the  practice  of  offering 
leaders  is  often  followed,  although  many  of  the  better 
classes  of  stores  do  not  indulge  in  it. 

For  instance,  a  Congressman  recently  told  of  a 
department  store  in  Washington  that  advertised  a 
book,  which  at  that  moment  was  extremely  popular, 
and  that  was  advertised  at  a  cut  price,  considerably 
lower  than  the  current  price  at  which  it  was  being 
sold,  and  there  was  a  run  on  that  department  of  that 
store  for  that  book.  They  had  twelve  copies  of  it,  and 
they  sold  them  out  at  once,  of  course.  Then  they 
said,  "There  has  been  such  a  rush  for  it  we  cannot 
supply  it.  We  will  have  in  another  supply  in  ten 
days  or  so." 

Now  the  book  could  be  found  at  the  publishers  in 
Washington,  and  the  people  came  in  and  said,  "What 
is  the  price  of  this  particular  book?"  "So  much." 
"I  can  buy  it  at  such  and  such  a  department  store  at 
so  much  less."    "We  cannot  seU  it  for  that." 

95 


PRICE    MAINTENANCE 

This  obviously  shows  that  the  cut  price  stores 
and  business  establishments  following  the  practice  of 
making  leaders  of  certain  goods,  are  not  doing  the 
public  a  service,  but  instead  they  are  deceiving  them 
grossly  and  using  a  decoy  or  bait  to  draw  them  into 
their  establishments  in  the  anticipation  that  they  will 
spend  money  there  for  other  goods,  many  of  which 
will  probably  be  sold  at  prices  far  greater  than  they 
could  be  had  for  elsewhere. 


A  Bad  Practice. 

It  is  a  most  reprehensible  thing  for  a  member  of 
the  firm  to  go  on  the  road  and  sell  goods  at  less  than 

he  instructs  his  men  to  do.  When  he 
The  Cutter  ^^ts  home  he  is  sometimes  afraid  to 

When  a  Member  put  the  price  on  his  order,  but  prices 
of  the  Firm         ^^  secretly.    This  makes  customers  lose 

confidence  in  the  regular  salesman  and 
the  prices  he  quotes,  and  gives  the  salesman  just 
cause  for  complaint. 

If  the  member  of  the  firm  cannot  maintain 
prices,  he  should  stay  at  home  and  not  annoy  and  dis- 
courage those  who  are  able  to  make  a  profit. 


86 


CHAPTER  IX. 


Distant 

Territory 

Unprofitable 


SOURCES  OP  LOSS. 

It  is,  of  course,  impossible  to  draw  a  line  around 
any  certain  territory  and  say  that  that  territory  be- 
longs to  any  certain  city  and  that  merchants  from 
other  cities  should  not  solicit  business  there. 

It  seems,  however,  that  it  is  quite  probable  that 
merchants  from  other  cities,  having  arrangements  in 
those  cities,  which  permit  them  to 
make  a  fair  margin  of  profit,  should 
not  come  into  another  territory  foreign 
to  them  and  make  prices  which  are 
lower  than  they  would  make  at  home. 

Time  and  time  again  such  a  course  has  been  pur- 
sued and  retaliation  has  been  undertaken  by  the  of- 
fended merchant  with  results  which  are  easy  to  be 
seen  and  sad  to  relate. 

Further,  jobbers  selling  out  of  their  natural  ter- 
ritory must  usually  allow  freight  which,  in  many 
cases,  absorbs  a  large  portion  of  the  net  profit  other- 
wise made. 

Several  States,  notably  Iowa,  Minnesota  and 
Nebraska,  have  made  it  unlawful  to  sell  goods  at  a 
lower  price  in  one  locality  than  in  another.  This,  of 
course,  relates  largely  to  commodities  sold  by  large 
trusts,  where  the  object  of  such  a  practice  has  been 
to  demoralize  the  business  of  a  competitor.    However, 

97 


i 

( 


I" 


i» 


f 


PRICE    MAINTENANCE 

some  large  manufacturers  and  wholesalers  of  mer- 
chandise would  greatly  assist  in  maintaining  fair 
market  conditions  if  they  would  resist  the  temptation 
to  dump  their  surplus  stock  in  territory  foreign  to 
them. 

There  are,  unfortunately,  some  wholesalers  who 
feel  that  they  are  so  large  and  important  that  the  entire 
country  is  their  natural  territory.  They  have,  perhaps, 
in  years  gone  by,  sold  their  merchandise  throughout 
the  United  States,  but  the  country  has  grown  and 
developed  to  such  a  degree  that  business  is  becoming 
localized  to  a  greater  and  greater  extent.  The  jobber 
today  who  insists  on  doing  business  in  remote  terri- 
tory generally  does  it  at  a  sacrifice  of  profit  for  him- 
self and  for  those  in  the  territory  which  he  endeavors 
to  invade. 

In  many  cases  the  jobber  attempts  to  hold  such 
trade  in  order  to  maintain  his  former  volume  of  busi- 
ness and  to  maintain  his  prestige  with  the  manu- 
facturer. He  does  not  stop  to  think  that  net  profits 
count  more  than  volume  of  sales  and  that  his  prestige 
with  the  manufacturer  suffers  severely  with  the 
natural  complaint  of  cut  prices  made  by  competitors. 
There  is,  in  many  lines  of  business,  a  feeling  that 
certain  classes  of  staples  must  necessarily  be  sold  at 

cost  or  at  a  price  as  near  cost  as  possi- 
ble. 

All    goods,    staple    or    otherwise, 

must  bear  their  percentage  of  the  cost 

of  doing  business,  and  to  imagine  that 

merely  because  certain  goods  are  staple  and  sell  with 

less  effort  or  in  greater  volume  than  other  goods  they 


SeUing  Staples 
at  Cost 


^ 


SOURCES    OF    LOSS 

can  be  sold  without  respect  to  cost  of  handling,  is  a 
fallacy  which  can  only  be  exploded  by  a  gradual  cam- 
paign of  education. 

We  know  of  staple  items  now  in  the  profit  bear- 
ing class  which  have  been  in  the  rut  for  twenty  years, 
proving  that  unprofitable  conditions  on  staple  goods 
can  and  have  been  overcome. 

Discount  Sheets. 

Many  houses  print  Discount  Sheets  which  are 
distributed  broadcast  and  quote  either  discounts  or 
net  prices  on  goods. 

Some  of  these  sheets  quote  a  general  average 
price  and  do  not  do  any  particular  harm.  Other 
sheets  quote  lower  prices  which  are 
unremunerative;  and  still  other  sheets 
quote  higher  prices  than  the  houses  are 
willing  to  sell  for  and  are  misleading, 
certainly  doing  no  good  for  the  house. 

The  broadcast  distribution  of  Discount  Sheets  is 
a  most  expensive  proposition  to  the  house  indulging 
in  the  practice,  and  is  felt  to  be  demoralizing  to  profits 
in  general  and  to  be  an  unnecessary  and  unwarranted 
expense,  as  well  as  constituting  a  demoralizing  factor 
in  connection  with  fair  prices. 

A  leading  wholesaler,  speaking  on  the  discount 
sheet  question  sometime  since,  said : 

"For  a  number  of  years  we  published  a  complete 
discount  sheet,  and  personally,  I  thought  it  one  of  our 
best  advertisements,  although  exceedingly  costly.  1 
believe  we  were  the  first  firm  in  our  city  who  ever  at- 

99 


Discount  Sbeet 
Undesirable 


1 


PRICE    MAINTENANCE 

tempted  to  publish  a  sheet  of  this  character,  and  I 
thought  it  was  a  good  investment,  although  many  of 
our  salesmen  objected  to  it  strenuously. 

"In  distributing  our  discount  sheets,  of  course, 
salesmen  employed  by  other  competing  houses,  prompt- 
ly secured  copies  of  it,  and  it  was  the  easiest  thing  in 
the  world  for  them,  knowing  what  our  prices  were,  to 
slightly  shade  them  in  some  instances  and  take  busi- 
ness away  from  us. 

"A  number  of  our  competitors  here  finally  began 
publishing  sheets  at  irregular  intervals,  and  the  result 
of  the  whole  thing  was,  that  we  found  upon  investiga- 
tion, that  we  were  simply  educating  our  customers  to 
ask  for,  and  insist  upon  having,  lower  prices  than  those 
printed  in  the  discount  sheets. 

"In  the  regularly  published  sheet,  you  cannot,  of 
course,  in  all  cases  show  extreme  prices,  and  in  many 
instances  when  the  market  advances,  if  you  have  pub- 
lished prices  in  the  hands  of  your  customers,  they  will 
insist  upon  having  the  lowest  prices  shown  in  your 
sheet  without  regard  to  any  advance  in  your  market 
costs.  Of  course,  by  possibly  close  attention  at  some 
expense,  the  market  advances  could  be  properly  han- 
dled, but  nevertheless  it  has  always  been  found  to  form 
a  constant  source  of  annoyance. 

"We  continued  the  publication  of  our  discount 
sheets  for  several  years,  but  early  in  1910,  at  the  urgent 
request  of  our  salesmen,  we  decided  after  discussing 
the  situation  with  other  jobbers  here,  to  discontinue 
its  publication. 

"To  the  writer's  surprise,  we  not  only  did  not 
lose  any  business  by  discontinuing  the  sheet,  but  really 

100 


t' 


41^ 


SOURCES    OF    LOSS 

placed  ourselves  in  a  position  to  make  a  better  profit, 
as  without  the  discount  sheet  our  customers  have  no 
line  on  prices,  and  we  are  not  asked  to  make  as  many 
concessions  or  corrections  in  our  invoices  as  we  had 
been  previously. 

"The  publication  of  these  discount  sheets  cost  us 
about  $600  per  month,  without  including  the  cost  of  a 
great  deal  of  time  and  labor  necessary  to  keep  the 
sheets  constantly  corrected.  We  are,  therefore,  sav- 
ing that  amount  of  money,  as  well  as  labor,  and  our 
profits  are  not  only  as  good  but  better  than  they  were 
when  we  published  sheets,  and  were  compelled  to  in- 
voice the  materials  at  the  prices  shown  in  these  sheets. 

"Much  as  I  was  in  favor  of  the  plan  formerly,  my 
experience  has  led  me  now  to  condemn  the  idea  of  pub- 
lishing the  monthly  or  quarterly  sheets." 


101 


'11 


CHAPTER  X. 

OVERPRODUCTION. 

The  great  strides  made  in  the  manufacture  of  all 
commodities  have  been  responsible  in  a  measure  for 
low  prices. 

Reports  of  the  Department  of  Commerce  and  La- 
bor based  on  accurate  statistics  show  that  improve- 
ments in  machinery  and  processes  of  manufacture, 
during  the  past  fifty  years,  have  made  possible  a  re- 
duction of  an  average  saving  of  time  of  75%  in  the 
making  of  goods. 

Moreover,  in  addition  to  this  there  has  been  an 
increase  in  the  number  of  factories  entirely  out  of  pro- 
portion to  the  demand  for  the  goods. 

Then,  too,  many  factories  have  been  considerably 
enlarged  in  boom  times  and  operation  on  half  time  to- 
day, for  instance,  would  result  in  as  large  an  output 
to-day  as  operation  on  full  time  five  years  ago. 

Demoralization  in  prices  is  often  caused  by  over- 
production. In  boom  periods,  manufacturers  have 
often  increased  their  facilities  and  output,  and  in  years 
of  less  active  business,  this  has  placed  them  in  a  posi- 
tion where  they  can  make  a  full  year's  supply  in  six 
months'  time. 

It  is  true  that  no  one  manufacturer  has  capacity 

102 


i 


Ovezproduction 

a  Serious 

Menace 


OVEKPRODUCTION 

to  produce  a  quantity  suflScient  to  satisfy  the  entire 
demand  of  the  country,  but  every  man- 
ufacturer, or  nearly  every  one,  believes 
that  his  product  is  equal  to,  or  superior 
to  that  of  every  other  manufacturer. 
He,  owing  to  the  fact  that  he  has  his 
investment  and  can  run  his  factory  on  full  time  at  a 
less  cost,  insists  upon  running  the  factory  full.  Then, 
of  course,  he  endeavors  to  obtain  a  market  for  his 
goods,  and,  too  often  the  trade,  without  considering  the 
effect  such  action  will  have,  will  place  their  orders  with 
that  manufacturer,  provided  he  will  shade  the  price. 

The  manufacturer  does  not  stop  to  think  of  the 
effect  of  such  cut  price,  and  the  merchant  is  only  too 
willing  to  get  that  cut  price  and  uses  it  in  making  up 
his  selling  schedule,  ignoring  the  fact  that  he  is  de- 
stroying his  own  market  and  is  lowering  the  scale  of 
values  over  the  entire  country,  as  such  prices  cannot 
be  confined  to  any  local  territory  but  become  national 
in  character. 

It  is  most  difficult  to  find  a  remedy  for  this  crime 
of  over-production.  If  the  jobber  would  decline  to 
place  business  even  at  a  lower  price 
with  the  over-producing  manufacturer, 
and  would  give  it  to  the  manufacturer 
who  is  running  his  business  on  a  sane 
basis  and  trying  to  assist  the  trade  in 
maintaining  a  fair  market,  it  would  go  far  to  better 
conditions.  Or,  if  the  ideal  condition  of  reducing  over- 
production on  the  part  of  the  manufacturers  could  be 
brought  about  by  effecting  co-operation  among  them 
and  inducing  them  to  produce  an  equal  proportion, 

103 


A  Semedy 
Difficult 


PRICE    MAINTENANCE 

either  in  increase  or  decrease  of  the  demand,  it  would 
remedy  the  evil. 

The  manufacturer  should  also  see  that  the  penalty 
for  over-production  will  fall  upon  him  in  the  way  of 
a  lower  scale  of  prices,  yet  each  manufacturer  believes 
that  he  is  in  a  position  to  throw  this  burden  upon  the 
other  manufacturers  (his  competitors)  because  of  the 
superior  quality  of  his  product  or  his  better  facilities 
for  manufacturing  and  producing  at  a  lower  cost. 

Assimilation  of  this  increased  output,  out  of  pro- 
portion to  the  regular  demand,  is  impossible  and  it  is 
easy  to  forecast  the  result  of  conditions  which  enable 
manufacturers  in  so  many  lines  of  business  to  turn  out 
a  supply  for  an  entire  year  in  six  months'  time. 

It  seems  that  there  are  but  two  ways  out — one,  to 
reduce  production  to  a  point  nearer  the  actual  con- 
sumption and  make  a  fair  profit  on  the  goods  sold— 
the  other,  to  endure  unprofitable  conditions  until  such 
time  as  the  demand  catches  up  to  the  supply. 


104 


t 


I 
.  \ 


CHAPTER  XL 

OVER  STOCK. 

Among  other  causes  of  price  cutting  is  an  over- 
loaded market  or  an  unexpected  dull  period,  which 
places  the  trade  in  a  very  trying  position  and  offers 
great  temptation  to  begin  cutting  prices  in  the  hope  of 
moving  the  goods  quickly  for  cash.  This  is  often  a  re- 
sult of  poor  buying  or  bad  guessing  with  consequent 
necessity  for  making  prices  to  move  surplus  stock, 
without  regard  to  what  a  fair  price  should  be. 

One  of  the  economic  axioms  generally  believed 
as  needing  no  demonstration  is,  that  it  is  necessary  to 
adjust  prices  to  meet  changed  conditions  of  demand. 

Experience  has  proven  that  this  does  not  hold  true 
in  many  lines  of  merchandising  and  that  price  reduc- 
tions are  powerless  to  stimulate  sales  during  times  of 
depression. 

Under  such  conditions,  there  is  usually  fierce  com- 
.  petition  and  heavy  price  cutting,  which  does  not,  how- 
ever,  stimulate  demand,  but  merely  op- 
erates to  divide  a  limited  amount  of  bus- 
iness among  rival  bidders,  while  at  the 
same  time  increasing  the  uncertainty 
and  hesitancy  of  the  buyer,  who  at  such 
times  is  prone  to  hold  off  in  the  hope  of  further  con- 
cessions. 

105 


Old  Law  of 

Supply  and 
Demand 


J 


\ 


^1 


PRICE     MAINTENANCE 

It  is  recognized  as  an  invariable  characteristic  of 
the  market  during  dull  periods  that  demand  is  half 
dead,  and  that  price  cutting,  no  matter  how  drastic,  is 
powerless  for  its  resuscitation. 

Quantity  Prices. 

Quantity  prices  have  in  the  past  been  resorted  to 
by  some  manufacturers  in  an  effort  to  properly  market 
their  product. 

It  is  true,  that  fundamentally  prices  are  governed 
by  the  quantity  taken  by  the  buyer,  and  the  very  ques- 
tion of  being  jobbers  or  wholesalers 
ooDsideration  of  carries  with  it  the  idea  that  the  parties 
Quantity  Price  SO  designated  are  entitled  to  a  differen- 
Pian  tial  or  special  prices  on  account  of  the 

quantity  taken. 

It  has  the  precedence  of  history  behind  it  and 
some  arguments  in  favor  of  it,  but  does  it  not  seem 
that  the  American  market,  comprising  as  it  does, 
the  largest  economically  high-grade  area  under  one 
political  control,  with  uniform  trade  customs,  laws 
and  language,  should  not  be  governed  by  such  a  primi- 
tive method? 

Manufacturers  claim  that  they  can  handle  large 
quantities  at  less  expense ;  that  they  can  manufacture 
and  ship  them  more  cheaply  with  less  clerical  work 
involved,  and  there  are  many  reasons  why  a  quantity 
would  be  more  favorable  and  pleasing  to  them,  as  they 
like  to  introduce  large  purchases  so  as  to  quickly  dis- 
pose of  their  product. 

Would  it  not  be  far  more  advantageous,  however, 
for  the  manufacturer  to  avoid  placing  his  customers 

106 


OVER   STOCK 

at  a  disadvantage  in  competition  by  some  other  plan 
which  would  be  fairer  in  its  operation  than  a  plan  based 
on  quantity  only. 

In  some  cases  the  smaller  buyer  is  far  more  loyal 
and  promotes  the  sale  of  the  goods  with  much  greater 
enthusiasm  than  some  of  the  larger  buyers,  and  is, 
therefore,  entitled  to  receive  every  consideration. 

Many  a  buyer  of  merchandise  will  take  a  larger 
quantity  of  an  article  than  he  can  profitably  handle 
because  of  the  allurement  of  a  larger  discount.  After 
he  has  sold  three-fourths  of  the  goods  the  profit  still 
remains  in  the  unsold  fourth,  and  yet  he  must  often- 
times sell  the  remaining  fourth  at  a  great  reduction  in 
price  in  order  to  dispose  of  it  at  all.  It  would  have 
been  a  far  wiser  plan  to  buy  the  quantity  that  would 
probably  sell  out  clean  in  the  regular  way,  paying  the 
price  the  quantity  might  warrant.  The  profit  would 
have  been  larger  in  the  end. 

A  quantity  price  plan  or  any  reward  for  reaching 
a  specified  mark  in  mere  volume  is  bad,  in  that  it  places 
before  men  a  temptation  (sometimes  irresistible)  to 
do  something  wrong  to  fulfill  the  requirements. 

If  a  customer  is  handicapped  by  not  having  sale 
for  any  given  quantity,  will  not  his  enterprise  lead 
him  to  combine  his  purchases  with  others  in  order  to 

get  the  price? 

Or,  may  not  his  ambition  lead  him  to  purchase  the 
quantity  himself,  and  then  may  he  not  be  forced  to  cut 
the  price  to  unload  the  surplus? 

By  combination  of  orders,  extreme  prices  are  of- 
ten extended  to  those  who  are  not  entitled  to  such 
prices,  by  reason  of  the  character  of  business  con- 

107 


i^ 


P* 


Becognlzed 
Channels  of 
Trade 
Available 


PRICE     MAINTENANCE 

ducted  by  them.  In  this  way  some  concerns  are  placed 
in  a  position  to  cut  prices,  to  the  disadvantage  of  their 
competitors  who  buy  for  their  legitimate  wants  only. 

The  quantity  price  plan  is  defective  in  that  it  fails 
to  recognize  the  character  of  business  or  method  of 

distribution  of  the  party  receiving  the 
prices. 

It  absolutely  ignores  all  established 
channels  of  trade  and  in  some  instances 
a  consumer,  either  alone  or  by  combin- 
ing purchases  with  other  consumers,  can  reach  the 
maximum  quantity,  thereby  receivmg  the  extreme 
price,  to  the  disadvantage  of  the  legitimate  distributor, 
who  has  probably  introduced  the  goods  in  the  market 
in  question  and  who  carries  them  in  stock. 

There  have  developed,  through  a  period  of  years 
of  experiment,  thoroughly  tested  and  successful  agen- 
cies of  distribution,  wholesale  and  retail  stores  and 
business  which  afford  the  manufacturers  far  more  eco- 
nomical, stable  and  satisfactory  mediums  for  reaching 
the  ultimate  consumer  than  would  be  provided  by  at- 
tempts at  direct  contact. 

Therefore,  with  the  fact  established  that  these 
regularly  constituted  agencies  of  distribution  are  an 
economic  advantage,  the  quantity  price  plan  is  not 
regarded  as  essential  or  "down  to  date." 

Those  manufacturers  whose  selling  plans  have 
been  most  successful  have  provided  in  their  sales 
policy  a  place  for  each  factor  in  the  distributing 
scheme.  For  each  class  of  distributors  a  proper  differ- 
ential, with  consideration  to  the  service  rendered  and 
the  expense  involved,  has  been  allowed. 

108 


' 


Deceit 

Practiced 


OVER    STOCK 

Classification  of  the  Trade, 

Good  results  can  be  secured  by  classifying  the 
trade  and  quoting  accordingly. 

This  classification  of  the  trade  should  be  fair  and 
thorough.    Paper  and  printers'  ink  are  cheap,  and  the 
mere  statement,  wholesale,  or  jobbers, 
on  a  letterhead  is  not  necessarily  cor- 
rect.   The  business  rating  given  in  the 
commercial  agency  reference  books  is 
also  very  often  dictated  by  the  party 
himself,  and  is,  therefore,  made  to  suit  his  desire  and 
purposes. 

Classification  of  the  trade,  should  be  according  to 
a  set  standard  and  correct  definition,  and  not  be  mere 
guesswork  or  salesman's  "say  so."  Those  in  a  position 
to  know  in  the  same  city  or  territory,  and  fair-minded 
and  unbiased  enough  to  give  a  true  statement,  should 
be  consulted.  Trade  associations  will  always  very 
gladly  investigate  and  report. 

Employment  of  Commission  Men  by  Manufacturers. 

This  practice  is  most  unfair  to  the  legitimate 
trade,  as  only  too  often  the  selling  price  at  which  such 
brokers  are  instructed  to  sell,  are  shaded  in  the  anxiety 
to  earn  the  commission.  Again,  being  under  no  ex- 
pense, carrying  no  stock,  extending  no  credit,  the 
broker  is  in  a  position  to  undersell  the  legitimate  job- 
ber who  carries  a  stock  and  accounts,  and  is  a  respon- 
sible factor  in  the  distributive  system. 

109 


I 


CHAPTER  XIL 

SELLING  ON  APPROVAL. 

Such  a  practice  as  that  of  a  salesman  taking  an 
order  from  a  customer  subject  to  approval  and  accept- 
ance by  the  house  is  a  most  pernicious  one,  disastrous 
to  the  business  and  harmful  to  the  concern  resorting  to 
such  practice. 

Perhaps  the  easiest  way  for  the  salesman  to  show 
a  good  volume  of  sales  is  to  convince  his  customer  that 

he  is  the  man  to  deal  with  because,  when 
he  has  it  in  his  power,  he  will  push  an 
order  through  at  a  special  price  and  at 
all  times  work  in  the  customer's  interest. 
This,  indeed,  places  the  salesman  in 
the  anomalous  position  of  "working  in  the  interest  of 
the  customer  and  getting  his  pay  from  his  employer," 
reversing  the  proper  order  of  things,  placing  first  the 
interest  of  the  customer  and  next  that  of  the  salesman. 
If  this  condition  of  the  control  of  the  house  by  the  cus- 
tomer and  salesman  is  permitted  to  exist,  the  house 
stands  merely  a  chance  of  getting  what  is  left. 

For  a  traveling  man  to  accept  an  order  at  a  cut 
price,  subject  to  the  approval  of  the  house,  leads  the 
customer  to  think  that  under  certain  circumstances 
such  an  order  will  be  accepted. 

If  the  order  is  rejected  by  the  house,  the  result 

110 


Salesman 
Tempted  to 
Work  in 
Customer's 
Interest 


ill 


Do  Not  Allow 

Salesmen  to 

Submit  Orders 

at  Oat  Prices 


SELLING   ON   APPROVAL 

may  be  that  the  customer  concludes  that  he  is  not 
among  the  favored  few. 

On  the  other  hand,  if  the  order  is 
accepted,  the  traveler  having  been  ad- 
vised of  the  cut  price  made  by  some 
other  concern,  he  is  justified  in  conclud- 
ing that  if  the  house  accepts  the  order  at  a  cut  price, 
he  is  at  liberty  to  make  it  to  other  customers,  and  he 
assumes  that  the  house  has  not  told  him  the  whole 
truth;  that  a  larger  profit  was  made  than  he  was  given 
to  believe  was  the  case. 

Then,  again,  will  not  many  other  thoughtless  sales 
managers  "go  them  one  better"  by  "shading"  this 
price,  not  only  to  the  party  who  originally  submitted 
the  order  at  a  cut  price,  but  will  they  not  extend  their 
revised  cut  prices  throughout  the  territory  which  they 
cover? 

Nothing  is  gained  by  this  process.  If  the  sales- 
man stands  his  ground  and  declines  to  consider  the 
business  by  submitting  the  order  at  a  cut  price,  the 
order  will  probably  be  secured  through  superior  sales- 
manship at  the  regular  price  and  values  will  not  be 
affected. 

It  is  most  difficult  to  correct  the  false  impression 
which  is  held  by  so  many  salesmen  regarding  the  mar- 
gin of  net  profit  realized.     No  matter 
how  convincing  the  character  of  evi- 
dence which  is  submitted  to  them  re- 
garding the  cost  of  doing  business  and 
the  large  amount  of  profitable  business 
required  to  offset  the  amount  of  sales  done  on  an  ex- 
ceedingly close  margin  of  profit,  they  seem  to  be  dis- 

111 


Salesmen  Do 

Not  Realize 

How   Smaa 

Profit  Is 


tKl 


ft 


II 


i : 


PRICE    MAINTENANCE 

trustful  and  unable  to  realize  that  the  facts  submitted 
are  absolutely  correct  and  that  the  return  for  the 
capital  and  brains  employed  is  very  small. 

The  practice  of  taking  orders  subject  to  approval 
reminds  one  of  the  story  of  the  young  man  who  went 
into  business  and  purchased  a  large  opening  stock  of 
goods.  He  was  not  acquainted  with  the  prices  at  which 
the  goods  should  be  sold  to  yield  a  profit.  He  had  no 
means  of  knowing  on  what  basis  he  could  figure  safely. 
On  the  advice  of  some  friends,  as  ignorant  as 
himself,  he  proceeded  to  price  the  goods  in  other  stores, 
with  the  idea  of  adopting  their  prices  as  his.  As  a  re- 
sult he  adopted  the  lowest  selling  prices  he  could  find 
were  being  asked  on  the  various  items.  Yes,  the 
sheriff  took  charge  in  due  time. 

As  foolish,  unbusinesslike  and  prodigal  as  it  may 
seem,  did  he  not  merely  follow  out  the  same  policy  as 

many  salesmen  advocate  today?  They 
have  the  price  before  them  which  the 
house  has  fixed  as  a  minimum.  Perhaps 
the  house  has  given  them  the  factory 
cost  of  the  goods  (this  practice  is  not 
felt  to  be  a  good  one — salesmen  should  not  be  furnished 
with  costs) ,  they  know  what  it  costs  to  do  business,  and 
yet  they  actually  feel  justified  in  attempting  to  induce 
the  house  to  accept  business  on  some  other  basis. 

There  are  many  salesmen  to  whom  these  remarks 
do  not  apply,  but  there  are  still  those  to  whom  the 
ideal  house  would  be  the  one  which  sold  all  its  goods  as 
low,  if  not  lower,  than  all  other  houses. 


A  Mistake  and 
Its  ParaUel 


112 


CHAPTER  XIIL 

FOOLISH  SELLING. 

Unprofitable  conditions  have  often  been  created 
through  the  practice  of  contracting  for  or  selling 
goods  for  future  delivery. 

Future  delivery  at  a  short  period  after  the  order 
is  placed  is  not  referred  to,  but  prices  will  be  an- 
nounced in  September  for  seasonable  goods  which  are 
not  bought  by  the  consumer  before  June  or  July  of 
the  year  following. 

In  the  six  or  seven  months  intervening  between 
the  quotation  and  the  actual  delivery,  there  is  every 
opportunity  for  others  to  quote  against  the  price,  and 
only  too  often  have  prices  been  shaded  to  meet  quota- 
tions which  were  made  by  others. 

Manufacturers  have  made  such  prices  early  in  the 
season — often  when  they  did  not  know  what  their  raw 
material  was  going  to  cost.  Such  practice  is,  of  course^ 
unbusinesslike.  It  has,  however,  been  followed  by 
many  manufacturers,  and  as  one  cannot  avoid  the  truth 
by  refraining  from  thinking  about  it,  we  might  as  well 
face  the  facts. 

Give  a  little  thought  to  such  a  practice  and  profit 
by  concluding  to  make  quotations  less  far  in  advance 
and  to  make  prices  go  for  a  shorter  period  with  the 
stipulation  that  delivery  be  made  within  that  period. 

Any  citation  on  particular  goods  which  have  been 

113 


PRICE     MAINTENANCE 

sold  so  far  in  advance  as  to  bring  about  unprofitable 
conditions,  would  perhaps  be  embarrassing  to  the  man- 
ufacturers of  those  goods  were  they  to  be  mentioned 
in  this  volume,  but  while  the  facts  remain  as  at  present, 
they  should  be  made  the  subject  of  careful  thought 
and  something  done  toward  eliminating  one  of  the 
pernicious  practices  of  selling. 

Selling  at  Old  Low  Prices  on  a  Rising  Market. 

Selling  at  old  prices  on  a  rising  market  is  some- 
what akin  to  selling  goods  in  advance  without  a  knowl- 
edge of  the  market  values  at  the  times  when  goods 
should  really  be  sold. 

From  1907  to  1912,  there  existed  in  many  lines  of 
business  a  condition  where  practically  every  carload  of 
xoods  that  was  bought  by  the  trade  gradually  declined 
in  price  on  his  hands,  at  least  in  part,  before  it  could 
be  sold  off. 

What  few  advances  took  place  were  only  tem- 
porary and  short-lived.  As  a  consequence,  the  trade 
throughout  the  country  were  compelled  to  sell  goods 
on  a  declining  market  and  the  notice  of  the  decline 
ivas  distributed  broadcast  and  seemed  to  become  known 
at  once  to  all  buyers. 

In  the  last  half  of  1912,  there  came  a  condition 
where  the  market  was  continually  an  advancing  one. 
Under  such  circumstances,  with  the  rising  market,  it 
would  seem  but  natural  for  wise  business  men  to  take 
advantage  of  favorable  conditions  and  thus  in  part 
counteract  the  effect  of  unfavorable  conditions  under 

114 


FOOLISH    SELLING 

which  they  have  been  compelled  to  sell  goods  on  a 
declining  market. 

Those  who  took  advantage  of  the  tide  and  turned 
with  it,  rather  than  fought  against  it  by  persisting 
in  selling  goods  which  are  in  stock  or  contracted  for 
at  less  prices  than  the  manufacturers  are  quoting, 
were  able  to  make  the  profit  to  which  they  were  en- 
titled, instead  of  needlessly  sacrificing  it. 

Yet  in  face  of  all  this,  many  sellers  who  have  had 
stocks  bought  at  favorable  prices  or  who  have  favor- 
able contracts,  virtually  burn  the  wind  racing  through 
the  country  by  rail  or  automobile,  communicating  with 
customers  by  letter,  telegraph  or  telephone,  offering 
goods  to  the  trade  (some  of  the  goods  six  months  be- 
fore they  can  be  used)  at  reduced  prices. 

Such  business  men  cannot  realize  the  advantage  of 
advancing  their  prices  in  accordance  with  the  condi- 
tions governing  business.  It  should  not  need  a  word  of 
exhortation  on  the  part  of  any  one  to  induce  a  business 
man  to  take  his  profits  while  he  may,  and  it  is  felt 
that  both  manufacturer,  jobber,  retailer  and  salesman 
should  look  to  his  methods  of  a  rising  market  and  de- 
cide each  one  for  himself  whether  or  not  they  are  in 
accord  with  the  course  which  good  business  judgment 
would  dictate. 


115 


CHAPTER  XIV. 

THE  SALES  MANAGER. 

Who  is  to  blame  for  the  inefficient  salesman  and 
the  demoralizing  conditions  resulting  from  their  opera- 
tions? 

The  salesman  was  either  educated  by  a  sales  man- 
ager who  impressed  upon  his  men  the  importance  of 
talking  quality  and  service  and  real  values,  eliminating 
price  as  far  as  possible,  or  he  was  brought  up  strictly 
on  a  basis  of  price  competition. 

It  has  always  been  said  by  some  good  merchants 
that  the  sales  manager  is  by  far  the  most  important 

man  in  the  business  organization.  Upon 
his  policy  and  handling  of  the  business 
depends  the  results  in  sales  and  net 
profits.  One  merchant  said  that  if  he 
had  $10,000  with  which  to  hire  a  buyer 
and  a  sales  manager  he  would  pay  $7,000  to  the  sales 
manager  and  $3,000  to  the  buyer. 

If  the  position  of  sales  manager  is  filled  by  one 
who  is  not  strong,  it  would  be  just  as  well  to  eliminate 
the  office  of  sales  manager  and  let  each  salesman  make 
his  own  prices  as  he  sees  fit. 

Then,  if  the  sales  manager  makes  his  prices  mere- 
ly asking  prices,  allowing  them  to  be  scaled  down  as  the 
salesman  pleases,  will  he  run  any  chance  of  securing 
results  which  will  be  satisfactory? 

116 


The  Sales 
Manager  an 
Important 
Factor 


THE   SALES   MANAGER 


Would  not  the  office  boy  fill  the  position  of  sales 
manager  just  as  well? 

The  sales  manager  is  the  one  man  above  all  in  an 
institution  who  is  largely  responsible  for  its  success 
or  failure. 

He  should  have  all  the  qualifications  of  a  salesman 
and  few,  if  any,  of  his  shortcomings. 

He  should  have  gone  through  the  experience  of  the 
road. 

He  should  know  his  trade  to  enable  him  to  handle 
his  selling  prices  intelligently. 

He  must  have  the  respect  and  con^dence  of  his 
men,  the  ability  to  pick  out  and  correct  their  weak 
spots,  and  above  all  have  a  personality  that  fairly 
radiates  energy  and  enthusiasm,  at  the  same  time  hold- 
ing a  strong  line  on  the  men  where  the  question  of 
lower  prices  than  their  schedule  provides  for  is  at 
issue. 

The  sales  manager  must  be  educated  to  appreciate 
the  fallacy  of  a  profitless  business,  and  must  force  a 
profit  by  refusing  to  accept  such  busi-  The  Sales 

ness.  He  must  educate  his  selling  force  Manager  Should 
along  profitable  lines.     He  must  show     ^*  ^^''''^  "^ 

.,  Consistent  on 

them  that  m  the  selling  of  goods,  the  tJie  Price 

net  amount  of  profit  is  paramount  to  the  Question 

gross  amount  of  sales.  He  must  learn  for  himself  that 
a  fair  volume  of  business  with  a  profit,  is  rather  to  be 
chosen  than  a  heavy  volume  of  business  with  no  profit, 
and  for  his  business  salvation  must  compel  himself  as 
well  as  his  salesmen  to  get  an  honest  profit  or  pass  the 
business. 

The  sales  manager  should  teach  the  salesmen  all 

117 


PRICE     MAINTENANCE 

about  the  goods  they  have  to  sell ;  show  them  that  the 
price  is  right;  show  them  that  the  goods  are  of  high 
quality  and  will  sell;  show  them  that  the  best  service 
will  be  rendered  at  all  times  and  that  the  merchant 
will  get  a  full  dollar's  worth  for  every  dollar  invested. 
It  will  be  noted  that  this  article  does  not  deal 
with  the  meeting  of  prices  by  salesmen  on  the  road 
without  the  authority  of  the  house.  This  practice  is, 
or  should  be,  a  relic  of  by-gone  days. 

To  permit  salesmen  to  make  their  own  selling 
prices  on  their  employers'  goods  is  to  provide  for  them 
a  sink  hole  for  the  profits  of  the  house;  and  if  they 
cannot  be  broken  of  it,  far  better  that  they  quit  sales- 
manship and  become  auctioneers;  then  they  can  have 
unlimited  latitude  to  indulge  in  the  pastime  of  tobog- 
ganing on  a  sliding  scale  of  price-making  where  no 
harm  can  be  done. 

The  sales  manager  should  thoroughly  believe  and 
practice  the  policy  of  fairness.  He  should  be  fair  to 
the  house  and  fair  to  the  customer.  He  should  preach 
the  doctrine  of  trustworthy  goods  at  uniformly  right 
prices.  He  should  sustain  values  by  a  one-price  policy 
merit  and  win  approval  and  trade  for  his  house. 

Then,  there  is  the  example  set  of  the  high  integ- 
rity and  probity  of  the  employer  which  has  a  great 

influence  on  the  men  and  on  the  trade, 
for,  where  there  is  perfect  frankness 
between  employer  and  salesman  and 
where  there  is  honest  intent  of  motive 
the  salesman  will  reflect  these  ideals 
in  his  business  relations. 

One  of  the  principles  now  recognized  by  the  keen- 

118 


THE   SALES   MANAGER 


ft 


Tractice  What 
Ton  Preach 


t 


est  and  shrewdest  observers  is  that  the  "square  deal 
principle  is  the  surest  and  soundest  foundation  of  suc- 
cess in  a  large  or  small  business. 

Let  the  employers  or  sales  managers  occasionally 
take  a  little  time  with  their  men  and  teach  them  this 
rugged  independence,  frankness  and  simplicity  which 
has  characterized  many  of  our  successful  business  men, 
but  which  spirit  has  become  more  or  less  torpid  in  our 
busy  life  because  of  the  complex  affiliations  with  an- 
tagonisms of  supremely  selfish  interests. 

Have  meetings  with  salesmen  and  discuss  ques- 
tions of  mutual  interest  so  that  they,  in  turn,  will  be 
able  to  intelligently  go  into  the  matter  with  customers, 
and  will  be  able  to  accurately  and  favorably  discuss 
goods,  advantages  of  purchasing  from  their  house, 
etc. 

Salesmen  with  a  poor  sales  manager  lose  their 
nerve  too  easily,  and  when  they  go  up  against  hard 
luck  for  a  few  days,  they  think  their  prices  are  not 
right  and  get  desperate,  and  to  force  business  cut  the 
price  and  make  bad  business  worse,  for  they  have  es- 
tablished prices  that  they  will  not  be  able  to  get  up 
again  to  a  living  profit. 

Profit  getting  would  be  far  easier  if  the  business 
houses  were  to  assume  a  broader  attitude  in  instruct- 
ing their  salesmen. 

It  is  useless  to  expect  a  new  salesman  to  sell  the 
output  of  all  the  factories  in  the  country  the  first  year 
he  is  on  the  road,  and  it  would  be  far  better  to  go 
about  it  differently,  building  up  a  good  sound  business 
on  a  profitable  basis,  so  long  as  the  man  shows  abilily 
and  promise  of  early  success. 

119 


I 


i 


Timmess  and 
Fair  Prices  Win 


:  PRICE    MAINTENANCE 

A  courteous  declination  to  meet  a  cut  price  will 
often  enhance  a  customer's  respect  and  a  too  ready 
compliance  with  demands  for  lower  prices,  rebates  or 
claims  will  neither  command  the  respect  nor  the  confi- 
dence of  the  trade. 

A  firm  refusal  to  comply  with  an  unreasonable 
request,  even  when  coupled  with  an  implied  threat  to 
withhold  future  business,  will  as  a  rule,  place  the  sales- 
man in  a  better  position  for  future  profits  than  a  com- 
pliance with  the  demand. 

Because  a  competitor  chooses,  for  special  reasons 
or  otherwise,  to  sell  goods  at  less  than  their  market 

value  is  not  often  sufficient  cause  for  a 
house  to  lower  its  schedule  of  selling 
prices. 

Customers   soon  distrust  a  sales- 
man who  has  no  firmness  in  maintain- 
ing prices. 

If  goods  are  worth  $3.35  it  don't  take  a  man  to 
offer  them  at  $3.10.  A  trained  water  spaniel  would  fill 
the  bill  quite  as  well. 

If,  as  previously  stated,  there  is  a  report  of  lower 
prices  being  made  by  competitors,  the  salesman  should 
get  all  the  facts  and  unmistakable  evidence,  no  matter 
at  what  cost,  time  or  trouble,  before  he  gives  seriou.s 
consideration  to  the  report,  or  considers  it  as  founded 
on  fact. 

Then,  he  should  merely  submit  the  facts,  as  he  has 
them,  to  the  sales  manager  for  his  consideration,  in- 
vestigation and  action. 

It  should  not  be  within  the  salesman's  province  to 
change  prices  according  to  any  real  or  fancied  com- 

120 


i 


Y 


THE    SALES   MANAGER 

petition  which  he  has  presented  to  him.  The  sales 
manager  should  be  the  court  of  sole  and  final  resort. 
He  should  be  a  "bull"  on  the  market  every  time,  and 
the  salesman  should  be  given  no  authority  whatever  to 
meet  a  price  until  he  has  been  instructed  to  do  so  by 
the  sales  manager  in  due  time. 

The  salesman  is  paid  to  dispose  of  certain  goods, 
and  if  he  varies  the  selling  price  to  suit  his  own 
caprice  or  his  customers'  demands,  where  does  the 
authority  of  the  sales  manager  come  in?  Of  what  use 
is  he?  If  the  sales  manager  engages  a  salesman  to 
assist  him  in  disposing  of  merchandise,  should  he  not 
have  it  understood  that  when  he  fixes  a  selling  price 
that  that  price  is  the  only  price  at  which  the  goods  may 
be  sold?  What  progress  can  a  house  expect  to  make 
if  it  allows  its  salesmen  to  lower  and  raise  prices  indis- 
criminately? 

Giving  Salesmen  Cost, 

The  practice  of  giving  salesmen  costs  is  one  which 
is  gradually  being  abandoned,  as  it  has  proven  to  be  a 
drawback  rather  than  a  help  to  the 
salesmen — and  it  has  no  place  in  a  one- 
price  system.  It  lessens  the  salesman's 
confidence  in  his  own  selling  prices, 
fosters  price  shading  and  is  out  of  place 
in  a  business  where  the  sales  manager  controls  prices. 

Often  the  sales  managers,  or  principals  of  busi- 
nesses who  are  held  responsible  for  the  selling  end, 
are  heard  to  condemn  in  severest  terms  the  practice  of 
cutting  prices,  the  folly  of  selling  goods  without  a 
profit,  the  high  cost  of  doing  business,  the  increased 

121 


Bad  Practice  to 

Oive  Salesmen 

Costs 


PRICE     MAINTENANCE 

expense  growing  out  of  additional  competition,  etc., 
etc.,  showing  that  they  appreciate  the  importance  of 
improved  conditions  and  a  better  margin  of  profit — 
and  yet  these  same  men  will  continue  to  practice  the 
identical  methods  which  they  have  so  strongly  con- 
demned in  others.  What  right  has  any  man  to  con- 
demn the  practice  of  price  cutting  so  long  as  he  will 
make  concessions  from  his  own  quotations? 

Such  declarations  indicate  either  a  lamentable 
lack  of  knowledge  of  the  correct  cost  of  doing  business 
and  the  corresponding  proper  basis  for  fixing  selling 
prices  or  hypocrisy  of  the  rankest  sort.  If  a  business 
man  intends  to  accept  every  order  he  can  get  his  hands 
on  at  prices  to  suit  the  individual  case,  he  certainly 
is  in  no  position  to  condemn  others,  whether  they  cut 
prices  generally  or  only  in  isolated  cases. 

There  has  been  too  much  anxiety  to  do  a  large 
volume  of  business — ^forging  ahead  meeting  prices  in- 
discriminately with  very  little  if  any  in- 
vestigation, the  sole  aim  being  to  get 
the  volume  of  business.  When  called  to 
account  at  the  end  of  the  year,  we  come 
up  smiling  and  say,  "Well,  we  sold  the 
goods  all  right.  Of  course,  our  profits  did  not  show 
up  this  year,  but  our  business  is  established  now,  and 
next  year  we  are  going  to  make  money."  But  to  how 
many  of  us  does  next  year  ever  come?  It  is  apt  to 
be  the  same  old  story  of  having  a  wish  bone  where  the 
back  bone  should  be. 

Do  not  be  afraid  to  lose  an  order  with  equanimity 
once  in  a  while.  The  craving  for  business  is  in  some 
men  as  the  insatiable  desire  for  wealth. 

122 


Here  Volume 
Wortlilees 


Don't  Be  Afraid 

to  Pass  an  Order 

Once  in  a  Wliile 


THE    SALES   MANAGER 

They  cannot  bear  to  lose  an  order,  however  un- 
profitable, and  thus  the  gain  of  the  order  is  too  often 
a  minus  quantity. 

The  man  who  craves  for  orders  at  any  price  is  not 
far  removed  from  the  miser  craving  for  gold.  Noth- 
ing can  be  said  against  an  eager  de- 
termination to  get  orders ;  but  the  man 
who  carries  it  to  the  extreme  must  rob 
either  himself  or  his  firm  of  the  due  re- 
wards of  business,  or  must  resort  to  de- 
ception and  intrigue  in  order  to  make  up  his  profits. 
It  no  doubt  requires  a  firm  will  to  let  an  order  go  by ; 
but  the  man  who  can  do  it  will  be  the  gainer  in  the 
long  run,  not  only  in  pocket,  but  probably  also  in  self- 
respect. 

It  also  requires  a  sound  judgment  to  determine 
when  to  forego  an  order  which  is  just  on  the  border- 
land between  profit  and  loss ;  and  the  experience  which 
will  enable  one  to  determine  this  can  only  be  obtained 
by  a  thorough  grasp  of  detail  and  sound  knowledge 
of  the  subject.  In  giving  estimates  nothing  should  be 
left  to  guess-work ;  all  should  be  based  on  careful  calcu- 
lation. Then,  if  it  comes  to  competitive  bargaining, 
you  know  where  you  are  and  how  far  you  can  go. 
When  labor  and  material  are  in  question,  it  is  only  the 
firm  which  has  its  men  thoroughly  in  hand,  and  knows 
their  capabilities  and  their  economy  of  working  that 
can  hope  to  compete.  When  it  is  a  question  of  the  sale 
of  a  commodity  for  which  there  is  a  market  price,  it  is 
the  firm  whose  financial  resources  and  business  system 
are  the  best  that  is  likely  to  get  the  order. 

Is  it  not  true  that  the  salesman  receives  much 

123 


I! 


PRICE     MAINTENANCE 

blame  for  conditions  for  which  he  should  not  be  held 
responsible?  In  such  cases  a  salesman  is  given  no 
authentic  information  as  to  what  the  overhead  expense 
or  cost  of  doing  business  is.  He  does  not  know  the 
extreme  price  at  which  his  house  can  sell  goods  and 
make  a  profit. 

If  he  is  a  price  cutter,  should  not  a  large  portion 
of  the  blame  be  laid  at  the  door  of  the  sales  managers 
who  have  "turkish  towels  in  place  of  back  bones"  and 
who  are  ever  ready  to  listen  to,  and  meet,  all  cut  prices 
which  are  alleged  to  have  been  made? 

Of  what  use  would  the  sales  managers  of  large 
retail  houses  be  if  a  vacillating  policy  obtained  in  con- 
nection with  their  selling  prices?    Did 
you  ever  hear  of  Tiffany's  giving  their 
salesmen  authority  to  shade  a  price? 
Were  you  ever  successful  in  inducing 
your  high-grade  retail  clothier  or  your 
department  store  to  meet  a  price  at  which  you  told 
them  you  could  purchase  similar  goods  elsewhere? 

And  did  you  not  admire  these  houses  for  their 
policy?  Did  you  not  admit  to  yourself  that  they  were 
the  kind  of  people  you  wanted  to  deal  with,  especially 
in  that  they  were  willing  to  stand  or  fall  on  their  sell- 
ing prices,  proving  that  a  most  careful  analysis  of  con- 
ditions must  have  preceded  the  fixing  of  the  selling 
prices. 

If  the  sales  manager  deviates  in  one  case  and 
makes  a  lower  price  it  means  that  he  must  preserve 
the  average  margin  of  profit  by  overcharging  some 
confiding  customer. 

What  reasons  can  you  honestly  offer  for  reducing 

124 


Big  Betailers 
Do  Not  Cut 


► 


THE   SALES  MANAGER 

your  selling  prices  after  you  have  made  them?  You 
have  figured  the  invoice  cost  of  the  goods  plus  over- 
head cost  or  selling  expenses  and  a  fixed  percentage  of 
profit.  If  you  reduce  your  prices,  is  it  not  an  admis- 
sion that  your  figures  were  errors,  guesses,  or  should 
it  be  inferred  that  they  were  made  in  an  attempt  to 
overcharge  your  customers  ? 

If  your  cut-price  competitor  persistently  under- 
sells you  and  you  are  unable  to  secure  your  share  of 
the  business,  revise  your  selling  prices  down  to  cost 
if  you  deem  it  wise,  holding  to  that,  for  the  cut-price 
house  will  go  still  lower,  for  that  is  their  policy. 

A  Plan  to  Secure  the  Co-operation  of  Salesmen  in 
Maintaining  a  Fair  Schedule  of  Prices, 

One  of  the  best  known  methods  of  securing  the 
thorough  co-operation  of  salesmen  in  maintaining 
prices  is  to  base  their  compensation  on  a  share  of  the 
profits  of  the  business  secured  by  them. 

This  eliminates  volumes  of  sales  as  the  chief  end 
and  substitutes,  in  its  stead,  the  idea  of  a  fair  volume 
of  profits. 

Being  a  partner,  at  least  as  far  as  the  customers 
on  whom  they  call  are  concerned,  the  salesmen  are 
liable  to  have  a  greater  interest  in  the 
business  and  to  more  watchfully  guard    pay  salesmen  a 
the  interests  of  the  house.  Share  of  the 

This    profit    sharing    system    (of  ^"*** 

which  full  details  follow  in  Part  IV  of 
this  book)  has  been  found  to  be  most  potent  in  help- 
ing to  maintain  established  prices.     There  is  no  in- 

125 


PRICE     MAINTENANCE 

centive  like  it.  On  the  salary  plan  the  entire  body  of 
salesmen  is  at  war  against  firm  "No  Deviation"  prices; 
on  a  profit  sharing  plan  the  entire  spirit  is  changed 
and  stands  for  absolute  maintenance  of  established 
prices  which  is  sure  to  result  in  great  benefits  to  all 
parties  concerned. 

The  profit  sharing  system  of  compensating  sales- 
men has  worked  satisfactorily,  but  if  a  house  engages 
a  man  on  this  plan  without  proper  regard  to  his  abil- 
ity, to  creditably  and  honorably  represent  them  and 
does  not  take  a  strong  position  on  the  price  question, 
they  will  do  much  to  demoralize. 


I' 


126 


CHAPTER  XV. 

A  FAIR  PRICE. 

Said  Charles  A.  Moore,  President  of  Manning, 
Maxwell  &  Moore,  Inc.,  New  York,  in  an  address 
recently : 

"Merchants  are  not  compensated  excessively.  In- 
deed, few  pursuits  require  so  much  and  give  so  little. 
But  stability  and  a  proper  reward  in  the  respect  of 
those  who  know  count  often  for  more  than  money  with 
many  a  man.  And  the  merchant  must  take  much  of 
his  reward  in  the  satisfaction  of  good  work  well  done — 
the  best  reward  for  the  good  fighter,  always. 

"I  have  often  compared  the  relative  necessity  for 
perfectly  accurate  methods  of  thought,  for  the  calmest 
of  unprejudiced  judgment  and  the  greatest  belief  in 
one's  self  in  many  branches  of  human  endeavor;  and 
in  no  branch  of  science,  or  philosophy,  or  commerce  are 
the  conditions  so  exacting  for  success.  Only  5%  of 
us  are  permanently  successful,  and  a  small  fraction  of 
one  per  cent,  eminently  so.  For  we  have  not  only  a 
prize  for  success,  but  a  penalty  for  failure,  which  is  so 
severe  that  it  is  measured  by  one  word — ruin.  The 
race  is  not  for  a  month  or  a  year,  but  for  a  lifetime. 
And  one  day,  after  thirty  years'  success,  may  mean 
failure  in  the  race,  instead  of  success.  Few  pursuits 
are  so  hazardous  and  so  fatal  to  bad  judgment." 

127 


n 


A  Fair  Price 
for  the  Asking 


PRICE     MAINTENANCE 

The  average  buyer  is  willing  to  pay  a  fair  and 
reasonable  price  so  long  as  he  knows  that  it  is  the 

lowest  that  the  seller  is  making  on  the 
quantity  purchased. 

If  those  in  a  given  line  of  business 
are  rendering  a  service  to  the  commun- 
ity they  are  entitled  to  proper  compen- 
sation. The  only  way  to  get  such  a  compensation  is 
to  fix  a  selling  price  sufficient  to  cover  it.  Experience 
has  proven  that  this  price  will  be  paid  just  as  will- 
ingly as  a  lower  one  and  greater  respect  will  be  had 
for  those  with  sufficient  sense  to  ask  a  profit  bearing 
price.  In  other  words,  the  securement  of  a  reason- 
able PRICE  IS  LARGELY  A  MATTER  OF  ASKING  IT,  and 

quietly  but  firmly  insisting  upon  it. 

If  you  get  a  fair  price,  the  chances  are  that  you 
are  maintaining  a  first-class  business  house,  that  your 
establishment  has  an  air  of  stability  and  character; 
that  your  well-paid  help  lend  you  their  thorough  co- 
operation in  handling  the  business  to  the  best  advant- 
age, and  that  the  whole  general  tone  of  your  estab- 
lishment inspires  confidence  and  attracts  and  holds 
trade. 

On  the  other  hand,  if  you  sell  cheaply  you  are  not 
in  a  position  to  maintain  such  a  standing  in  the  trade, 
and  the  better  class  of  buyers  who  consider  quality  and 
service  as  well  as  price  may  drift  away. 

Remember  that  often  a  low  selling  price  indicates 
the  quality  and  character  of  the  goods  rather  than  the 
margin  of  profit  and  that  instead  of  reducing  your 
price  it  is  incumbent  on  you  to  indicate  to  the  pros» 
pective  purchaser  wherein  your  product  excels.     Of 

128 


I 


i 


A    FAIR    PRICE 

course,  in  a  few  cases  with  short-sighted  customers  you 
may  lose  a  first  order,  but  you  will  get  subsequent 
orders  as  soon  as  the  customer  sees  where  the  lower 
priced  goods  are  much  dearer  considering  the  quality, 
and  when  he  realizes  the  satisfaction  which  he  has  sac- 
rificed for  a  trifling  difference  in  price. 

At  a  recent  meeting  of  some  manufacturers,  the 
chief  subject  of  discussion  was  that  of  the  installation 
and  maintenance  of  proper  cost  sys- 
tems in  their  plants.  The  cost  systems  j^^^  ^^^  j^ 
had  been  in  effect  some  years,  but  the  Known,  Be  Sure 
conditions  were  still  unsatisfactory,  and  to  Oet  a  Profit 
at  this  meeting  it  was  hoped  that  some 
means  for  improvement  could  be  devised.  Some  placed 
the  blame  on  careless  figuring  of  cost,  some  on  ineffi- 
cient salesmen.  Finally,  one  man  present  declared 
that  even  if  the  cost  systems  were  carried  out  with  the 
greatest  degree  of  accuracy  the  profits  would  vanish 
unless  the  sales  manager — ^the  man  behind  the  desk — 
had  the  courage  and  sagacity  to  fix  and  maintain  a 
proper  margin  of  profit. 

Of  course,  the  cost  of  doing  business  must  be  ac- 
curately determined,  including  not  only  some,  but  all 
the  items  chargeable  to  the  expense 
account  or  factors  in  the  cost,  and  this 
expense  must  be  added  to  the  flat  cost 
in  order  to  arrive  at  the  true  cost.  Then 
fix  your  margin  of  profit,  establish  the 
selling  price  and  get  it. 

Individually,  men  are  apt  to  place  the  blame  for 
cut  price  on  the  other  fellow.  From  their  numerous 
points  of  vantage  they  view  the  chaotic  condition  of 

129 


Don't  Blame  the 

Other  Fellow. 

Look  Inside 


PRICE    MAINTENANCE 

affairs,  vaporize  upon  trade  inconsistencies  and  then 
dig  in  with  all  their  might  and  main  to  secure  the  busi- 
ness regardless  of  the  promptings  of  their  better  judg- 
ment. 

When  the  expenses  of  business  are  figured,  there 
is  little  enough  left  so  that  there  need  be  no  bashf ul- 
ness  in  asking  a  fair  price  at  first. 

It  seems  as  if  men  were  ever  prone  to  fool  them- 
selves. We  are  all  of  us  more  ready  to  believe  what  we 
would  like  to  have  true,  than  what  is  probably  really 
the  truth  of  the  matter. 

Business  men  expect  more  than  there  is  any  good 
reason  to  believe,  and  when  they  get  to  figuring  on  a 

business  proposition,  they  give  the  good 
side  of  the  ledger  the  full  benefit  of 
every  doubt. 

Few  merchants,  not  more  than  a 
score  in  a  hundred,  perhaps,  either 
know  how  to  figure  actual  cost  of  their  goods,  or  are 
willing  to  admit  that  they  cost  what  they  actually  do. 
There  are  merchants  who  like  to  make  themselves 
think  they  are  making  a  good  profit,  and  like  to  think 
that  they  own  their  goods  cheaper  than  they  actually 

do. 

They  omit  to  figure  many  such  things  as  cartage, 
insurance  or  store  expense  because  these  things  may 
not  be  conspicuous  in  a  given  transaction. 

When  it  comes  to  net  profit  the  little  left  had 
been  almost  entirely  eaten  up  by  the  little  expenses 
not  counted  on.  It  certainly  takes  a  pessimist  to  be  a 
good  hand  at  counting  on  net  profits. 

The  making  of  prices  on  many  lines  of  goods 

130 


A  Fair  Price 
Will  Never  Be 
Secured  Unless 
It  Is  Asked 


I    . 


A   FAIR   PRICE 

which  are  not  subject  to  the  extremes  of  competition, 
is  done  by  many  successful  sales  managers  on  the  law 
of  average. 

To  be  gifted  with  the  power  of  knowing  when 
goods  must  be  sold  close  and  when  a  good  profit  can 
be  made,  is  most  valuable  to  every  one  who  has  to  do 
with  the  making  of  selling  prices  on  merchandise. 

Possibly  the  poorest  method  of  marking  such 
goods  is  on  a  percentage  basis. 

Goods  should  be  examined ;  the  value  to  the  retail 
and  consuming  trade  judged;  prices  fixed  accordingly 
and  then  reference  made  to  the  cost  in  order  to  see 
what  the  condition  is  there.  If  the  selling  price  thus 
fixed  shows  a  big  profit,  let  it  alone.  If  the  selling  price 
is  too  low,  raise  it. 

Slow  selling  goods,  specialties,  and  new  goods 
should,  of  course,  be  marked  at  a  higher  price  to  pay 
their  carrying  charges,  and  extra  profit,  when  it  is 
possible  to  get  an  extra  profit. 

This  system  is  used  largely  by  department  stores 
and  catalog  houses  who  make  a  large  extra  profit  on 
such  goods  and  then  make  very  low  prices  on  fast  sell- 
ing staples. 

This  law  of  average,  however,  should  not  and  can- 
not permanently  be  employed  in  the  distribution  of 
staple  lines  of  merchandise. 

The  suggestion  is  made,  however,  so  that  maxi- 
mum amount  of  profit  may  be  secured  on  all  lines. 


131 


1 


CHAPTER  XVI. 

CO-OPERATION. 

The  general  impression  seems  to  prevail  that  the 
interests  of  the  public  are  best  served  where  there  is 
the  freest  play  of  price  competition. 

We  believe,  however,  that  in  the  preceding  pages 
of  this  work  it  has  been  very  clearly  demonstrated 
that  price  competition  leads  to  conditions  which  are 
bad  for  merchant  and  consumer  alike,  and  it  is  certain 
that  in  many  instances,  such  unrestrained  price  com- 
petition has  led  to  the  disintegration  of  industries  and 
the  throwing  out  of  employment  of  thousands  of  peo- 
ple, thus  directly  harming  the  public  of  all  classes — 
stockholders,  employees  and  all  those  directly  or  in- 
directly dependent  on  the  industry. 

In  some  cases  it  has  thrown  a  piece  of  goods  off 
the  market  which  piece  of  goods  has  been  a  desirable 
article  for  the  consumer  to  be  able  to  purchase. 

The  remedy,  then,  for  such  a  condition,  of  unre- 
strained price  competition  would  seem  to  be  an  under- 
standing among  distributors  as  to  the  minimum  price 
which  will  be  accepted  for  certain  merchandise. 

This  is  worthy  of  a  vast  deal  of  earnest,  thought- 
ful consideration. 

First,  in  order  to  approach  the  subject  properly, 
let  us  consider  the  legal  phase  of  the  subject.     Un- 

132 


The  Legal  Side 


CO-OPERATION 

fortunately,  the  laws  prevailing  in  the 
United  States  are  not  favorable  to  co- 
operation in  the  form  of  price  agree- 
ment, but  this  is  a  matter  which  cannot 
be  here  corrected,  and  our  duty,  in  this 
connection,  lies  in  pointing  out  just  what  the  interpre- 
tation of  the  law  has  been  and  the  general  attitude 
which  the  courts  have  assumed  in  cases  of  price  agree- 
ments among  distributors. 

An  old  English  decision  held  that  all  parties  to  a 
price  agreement  were  indictable:  "That  at  what  rate 
soever  the  price  is  fixed,  high  or  low,  makes  no  differ- 
ence, for  all  such  agreements  are  of  bad  consequence 
and  ought  to  be  discountenanced." 

This  is  substantially  the  policy  of  the  law  down 
to  the  present  day,  as  the  interpretation  of  the  Sher- 
man Anti-Trust  Law  has  demonstrated. 

A  copy  of  parts  of  the  Sherman  Anti-Trust  Law, 
the  Canadian  Combines  Act  and  the  German  law  on 
Monopolies  and  Price  Agreements  is  given  on  pages  199 
to  207,  being  omitted  here  to  avoid  obscuring  the  text. 

However,  even  if  price  agreements  were  not  for- 
bidden by  law  they  are  difficult  of  operation  and  have 
probably  never  been  absolutely  maintained.  Broken 
price  understandings,  made  at  a  time  when  the  atti- 
tude of  the  law  was  not  clearly  against  them,  have 
laid  the  foundation  for  distrust  and  trade  hatred  and 
fostered  a  strong  underlying  lack  of  confidence  among 
those  in  the  same  line  of  business.  Therefore  let  us 
proceed  to  a  consideration  of  some  of  the  relations 
between  competitors,  and  ascertain  how  a  better 
foundation  for  profitable  conditions  may  be  laid. 

133 


{ \ 


\ 


PRICE    MAINTENANCE 


CO-OPERATION 


1^ 


Lack  of  Co-operation  Among  Distributors. 

Thus  far,  in  this  work,  we  have  treated  largely  of 
the  efforts  of  individual  sellers  to  secure  a  fair  profit 
for  their  merchandise. 

We  have  spoken  of  the  policy  of  the  individual 
house  in  relation  to  the  securing  of  a  fair  profit.  Now, 
let  us  consider  the  matter  of  co-operation  between 
those  in  the  same  line  of  business. 

The  conditions,  in  cases  where  there  is  no  co-oper- 
ation,  are  not  to  be  envied.  It  has  been  said  that  busi- 
ness men  are  their  own  worst  enemies 
Many  Guilty  of  and  are,  themselves,  responsible  for 
Oontxibutory  many  of  the  unprofitable  conditions 
Negugence  about  which  they  complain.     Possibly, 

many  will  promptly  plead  "not  guilty" 
to  such  a  charge,  but  on  more  mature  thought,  it  is 
certain  that  quite  a  number  will  at  least  admit  being 
guilty  of  "contributory  neghgence,"  for  does  not  lack 
of  co-operation  constitute  "contributory  negligence?" 
What  results  can  be  expected  where  men  in  the 
same  line  of  business  have  not  been  personally  ac- 
quainted with  another ;  where  they  compete  with  men 
with  "angel  wings"  and,  on  account  of  not  knowing 
them,  fall  into  the  mistake  of  beUeving  that  their  heads 
are  ornamented  with  a  well  developed  pair  of  horns? 
Competitors  have  been  known  in  some  lines,  who 
seem  to  have  spent  their  years  of  business  activity  in 
much  the  same  manner  as  the  two  enemies  who  hid  up 
the  road  for  ten  years,  watching  and  waiting  in  the 
hope  that  each  other's  hearse  would  come  along  so 
that  they  could  scare  the  horses. 

134 


Bury  the 
Hatchet 


There  have  been  cases  where  men,  sales  man- 
agers  of   competing   concerns,    have    done   business 
in  the  same  city  for  over  twenty-five 
years  and  have  never  met  each  other. 

These  gentlemen  have  been  spoken 
to  about  such  a  condition.  They  thought 
it  of  little  consequence,  even  though  the 
years  had  borne  no  surfeit  of  profits. 

Many  business  men  have  relied  for  their  knowledge 
of  conditions  on  the  statements  of  salesmen  and  cus- 
tomers, on  which  biased  and  often  incorrect  and  inac- 
curate reports  they  have  depended  without  further  in- 
vestigation and,  what  is  most  serious,  have  based  their 
actions  accordingly. 

Personal  acquaintance  with  and  confidence  in  com- 
petitors is  quite  a  factor  in  business. 

A  strong  illustration  of  the  effects  of  lack  of 
friendly  acquaintance  and  co-operation  is  afforded  by 
this  story  which  was  recently  related  by  a  man  of  long 
experience  in  a  certain  line  of  business  in  a  Western 
city: 

"For  many  years  an  unfriendly  feeling  existed 
here  among  the  trade.  Men  in  the  business  did  not  care 
to  meet  their  competitors  in  the  street, 
or  anywhere  else,  and  there  was  made  a 
brutal  scramble  for  business.  Competi- 
tors were  knocked,  goods  misrepre- 
sented and  the  public  dissatisfied.  Life 
under  such  circumstances  became  unbearable.  My 
father  burst  a  blood  vessel  in  his  brain  and  died — ^my 
uncle  in  the  same  line  of  business  succumbed.  Sharp 
died  suddenly  and  Shuster,  who  operated  a  little  shop, 

135 


A  True  and 

Interesting 

Story 


r)'' 


PRICE     MAINTENANCE 

passed  out.    All  of  these  men  were  in  the  prime  of  life. 

"Many  of  you  will  remember  Sharp — ^the  man  who 
sued  a  great  many  concerns  in  the  United  States  for 
infringing  certain  patent  rights  which  he  held.  Sharp 
put  up  a  bitter  fight  and  the  fight  waxed  warmest  here. 
In  some  instances  he  won,  but  it  was  like  most  law 
suits,  "when  you  win  you  lose."  After  going  through 
a  siege  of  this  and  spending  most  of  his  capital  in  lit- 
igation, he  settled  down  to  business.  He  had  wasted 
his  energy  in  fighting  and  as  he  still  held  out  unwhole- 
some thoughts  against  his  competitors,  he  gradually 
lost  ground  until  he  hardly  did  business  enough  to  hold 
the  franchise. 

"One  winter  evening,  it  was  quite  dark,  I  was  leav- 
ing my  place  of  business  to  go  home,  when  I  met  Sharp. 
He  walked  up  to  me  as  I  was  untying  my  horse  and 
from  the  way  he  addressed  me  I  concluded  that  some- 
thing had  come  over  him, — ^he  was  a  changed  man. 
He  spoke  to  me  in  a  very  kindly  way, — in  a  way  that 
touched  me.  He  said,  *Young  man,  I  have  been  watch- 
ing your  progress  in  business  for  some  time,  and  I  can 
see  that  you  are  doing  an  honest  business  and  that  you 
are  doing  good  work,  some  day  you  will  have  all  the 
business.'  I  replied,  thanking  him,  but  expressed  the 
belief  that  he  would  always  have  his  share  of  what 
was  going  on.  He  shook  his  head,  however,  and  bid- 
ding me  good-night,  was  soon  lost  in  the  darkness.  I 
never  saw  him  alive  again.  A  few  days  after  a  man, 
who  lost  considerable  money  on  account  of  the  law- 
suits Sharp  brought  against  him,  called  on  me.  He 
is  an  old  Roumanian,  honest,  but  one  of  the  kind  that 
will  carry  a  grudge  till  the  end  of  his  days.    He  ap- 

136 


CO-OPERATION 

proached  me  with  a  grin  on  his  face  that  extended  from 
ear  to  ear.  He  said,  *What  do  you  think?*  I  said  I 
did  not  know  what  to  think  and  asked  him  what  the 
joke  was.  He  came  over,  put  his  hand  on  my  shoulder 
and  in  a  hoarse  whisper  said,  *Sharp  iss  dade.'  *My!' 
I  said,  *I  am  sorry  to  hear  that,'  and  I  was  consider- 
ably affected  when  I  thought  of  our  last  meeting  and 
realized  how  lonely  the  poor  fellow  must  have  been. 
He  had  no  family  here,  his  business  had  gone  by  the 
board  and  he  had  reached  what  he  considered  was  the 
end  and  quickly  passed  on. 

"The  old  man  did  not  share  my  feelings.  He  vis- 
ited the  undertaker's  establishment  several  times  before 
the  funeral  and  gazed  upon  the  prostrate  enemy  with 
satisfaction.  Sharp  was  cremated.  The  Roumanian 
followed  him  to  the  crematory,  saw  his  poor  body  con- 
signed to  the  fiery  furnace,  and  last,  but  not  least,  saw 
him  fall  to  ashes,  then  he  was  satisfied.  Afterwards, 
he  purchased  from  the  executor  a  pair  of  Sharp's  spec- 
tacles, evidently  with  the  idea  of  discovering  from  what 
viewpoint  Sharp  took  things.    Can  you  beat  that? 

"Well,  now  you  may  think  that  the  old  fellow  must 
have  been  a  fiend — on  the  contrary,  he  was  and  is  a 
good-hearted,  soft-hearted  fellow,  who  would  do  no 
man  an  injury,  but  he  had  been  deviled  to  such  an  ex- 
tent that  he  was  not  accountable  for  what  he  did.  If 
he  had  been  a  man  of  higher  intelligence,  he  would 
never  have  done  such  a  thing.  He  was  a  man  that  had 
sprung  from  the  ranks.  Poor  old  Sharp  in  the  end 
showed  himself  to  have  been  a  good-hearted  man,  all 
he  needed  was  to  have  some  one  strike  the  right  chord." 

The  particular  industry  in  which  the  narrator 

137 


A 


PRICE     MAINTENANCE 

and  those  involved  in  this  true  story  were  and  are 
engaged  is  one  in  which  just  such  lack  of  co-operation, 
mutual  confidence  and  friendly  feeling  has  brought 
about  deplorable  conditions.  The  product  which  has 
been  the  subject  of  brutal  competitive  methods  has 
deteriorated  in  quality  and  the  result  has  not  only 
been  seen  in  a  lack  of  profit  on  the  material  sold,  but 
active  inroads  have  been  made  into  the  business  by 
an  imitation  product  which  has  been  manufactured  by 
an  apparently  wiser  set  of  men. 

The  word  "Co-operation"  comes  from  the  Latin 
"Co,"  meaning  "with,"  and  "opus"  or  "operis,"  mean- 
ing "work" — ^to  work  with. 

The  first  form  of  co-operation  is  with  yourself. 
The  first  way  to  co-operate  with  yourself  in  business 
is  to  deal  fairly  and  squarely  with  yourself,  which 
means  getting  a  living  profit  and  permitting  others  to 
do  the  same. 

Then  co-operation  with  others  will  be  an  easy 
thing.  Pull  with  those  in  the  same  line  of  business. 
Don't  pull  against  them.  No  man  will  ever  succeed 
who  has  not  learned  to  work  smoothly  with  other  men. 

Said  a  large  manufacturer  recently :  "What  would 
happen  without  co-operation?  What  would  be  the  re- 
sult if  we  separated  entirely,  simply  going  upon  our 
way,  doing  our  own  business  in  our  own  way,  when, 
how  and  where  we  please?  What  will  be  the  result 
practically,  if  we  do  that? 

"Why,  we  will  say  here  is  a  company  which  has  a 
mill  in  a  certain  locality — it  is  not  necessary  to  name 
that  company,  but  it  has  withdrawn  from  our  councils 
and  it  is  not  disposed  to  co-operate,  and  it  proposes 

138 


f» 


CO-OPERATION 

to  do  business  in  its  own  way  and  to  charge  such  prices 
as  seem  to  it  necessary,  in  order  to  get  the  business  it 
wants;  in  order  to  fill  its  mills.    That  company  goes 
into  a  certain  locality  and  finds  Mr.  King  and  Mr.  Mc- 
Cullough  with  mills  in  that  locality  and  it  proposes  to 
get  the  business  of  their  clients  and,  in  the  ordinary 
way  it  goes  to  Mr.  King's  client  and  says,  *I  want  your 
business,  and  I  will  sell  you  bars  at  $1.10  and  $1.05,* 
and  Mr.  King's  client  says,  *I  think  I  can  deal  with  you ; 
that  is  pretty  low,  but  I  will  let  you  know  to-morrow 
morning,'  and  to-morrow  morning  or  before  to-morrow 
morning  Mr.  King's  client  goes  to  Mr.  King  and  says, 
*I  am  offered  bars  at  $1.05.    Do  you  want  to  lose  that 
business;  do  you  want  to  lose  me?'  and  Mr.  King  says, 
*Well,  no,  I  don't  think  so  and  if  a  company  is  offering 
bars  to  you  at  $1.05,  I  think  I  will  let  you  have  them.' 
*Well,'  the  man  says,  *then  I  think  probably  I  will  stick 
to  you,  I  will  let  you  know  to-morrow  morning.'    And 
he  goes  to  Mr.  McCuUough  and  goes  through  the  same 
thing  there  and  Mr.  McCullough  says,  *Is  Mr.  King 
offering  them  at  $1.05  ?'    *  Yes.'    If  Mr.  King  has  done 
it  I  am  surprised,  but  I  think  I  will  let  you  have  them 
at  $1.04.    You  are  Mr.  King's  client  but  I  want  busi- 
ness and  I  will  let  you  have  those  bars  at  $1.04.'    And 
he  plays  those  two  against  each  other  as  long  as  he 
can,  but  finally  he  goes  back  to  his  first  company,  which 
started  the  trouble,  and  closes  with  it  at  $1.00. 

"In  other  words,  the  customer  is  not  playing  this 
one  company  against  all  the  rest,  but  he  is  going  to  get 
others  in  there  and  they  are  playing  against  one  an- 
other, whereas,  if  they  were  in  consultation  or  co-op- 
eration, Mr.  McCullough  when  he  received  the  oflfer, 

139 


If 


II 


PRICE     MAINTENANCE 

would  go  to  Mr.  King  and  say,  *Your  customer  has 
been  around  and  says  that  an  outside  company  will 
sell  at  $1.05/  and  then  Mr.  King  and  Mr.  McCuUough 
finds  out  about  where  they  stand  and  the  man  has  failed 
to  play  them  against  each  other;  and  if  they  have  to 
deal  in  such  a  way  as  to  prevent  this  outside  company 
from  taking  the  business  at  least  they  know  what  they 
are  doing  and  they  did  not  have  to  fight  each  other. 

"The  point  is  stated  in  a  rather  bungling  way,  but 
you  gentlemen  who  are  in  business  from  day  to  day 
know  better  than  I  do  how  it  is  done.  And  if  you  are  in 
consultation  and  each  knows  what  the  other  is  doing, 
you  cannot  be  used  against  one  another.  Having  full 
information  as  to  what  one  another's  prices  are,  you 
can  take  care  of  yourselves  against  the  one  company 
who  is  entirely  outside  of  your  friendly  and  proper 
co-operation.    That  is  the  point." 

This  is  a  subject  which  has  become  better  under- 
stood during  the  past  ten  years  than  during  any  previ- 
ous period  within  our  knowledge. 

Way  back  yonder  in  history,  men  led  a  life  of  se- 
clusion in  caves,  being  self-sufficient  and  having  no 

inter-dependence  or  relations    of    any 
character  with  their  fellows. 

There  was,  indeed,  an  entire  ab- 
sence of  friendly  intercourse  and  their 
only  meetings  were  in  course  of  con- 
quest and  of  a  hostile  character. 

Strange  to  say  many  business  men  have  followed 
a  similar  course,  not  realizing  that  in  the  modern  bus- 
iness world,  there  are  many  cases  where  the  pursuit 
of  such  a  course  is  the  height  of  folly. 

140 


Former 

Conditions  Not 
Desirable 


' 


■i 


Demoralization 

Cannot  Be 

Confined  to 

Limited 

Territory 


CO-OPERATION 

To-day,  the  relation  between  business  houses  is 
greatly  changed.  If  one  house  commits  an  act,  which 
is  unfriendly  or  which  tends  to  have  an 
unfavorable  influence  on  the  trade,  it 
is  quickly  felt  throughout  the  territory 
and,  indeed,  throughout  the  country. 

The  issues  are  not  between  man 
and  man,  or  house  and  house.  Throughout  the  com- 
plexities of  modern  business  life  and  in  the  onslaughts 
of  the  many  enemies  to  a  living  profit,  there  comes  to 
light  a  collective  interest  which  only  collective  action 
can  protect. 

Lack  of  acquaintance  among  business  men  aids 
and  abets  lack  of  confidence;  and  lack  of  confidence 
generally,  has  been  the  cause  of  several  severe  finan- 
cial panics  and  is  the  cause  of  panics  on  prices  in  busi- 
ness to-day. 

Confidence  (the  father  of  co-operation)  has  been 
the  principal  factor  in  eras  of  prosperity. 

Confidence  is  also  the  keystone  of  the  career  of 
every  successful  business  corporation. 

We  can  produce  confidence  by  square  dealing  and 
not  by  underhand  methods,  not  by  deception,  not  by 
vindictive  assertions. 

Profits  might  be  increased  all  along  the  line  if 
merchants  would  "come  out  of  their  shell"  oftener,  for 
lack  of  personal  acquaintance,  which  engenders  sus- 
picion, or  perhaps,  vindictive  competition,  stand  in  the 
way  of  the  many  advantages  to  be  gained  by  becoming 
acquainted  and  establishing  a  friendly,  honest  and 
frank  means  of  communication  between  each  other. 

141 


PRICE    MAINTENANCE 

Men  can  do  business  more  pleasantly  and  profit- 
ably if  they  will  be  neighborly,  and  granted  common 
honesty  and  fairness,  they  grow  more  neighborly  the 
more  they  meet  one  another. 

Said  Charles  A.  Moore,  of  New  York,  recently: 

"Two  men  who  have  put  their  legs  under  the  same 
mahogany  and  eaten  from  the  same  table  are  more 
potent  judges  of  each  other  than  any  distinguished 
law  court  in  the  land. 

"If  you  know  a  man  well,  know  him  personally  as 
an  individual  and  not  as  a  name  on  a  sign  or  a  letter 
head,  you  care  much  more  what  he  thinks  of  you  and  he 
cares  much  more  what  you  think  of  him. 

"Many  a  man  who  can  stand  the  adverse  comment 
of  thousands  of  unknown  people  in  the  press  of  the 
land,  could  not  and  would  not  face  the  dislike  of  half  a 
dozen  men  he  has  known  and  seen  daily  for  ten  years. 

"Disgrace  is  only  thought  of  in  terms  of  those 
whom  we  know  as  men  and  women.  Abstract  disgrace 
is  as  weak  a  thing  as  I  know  of. 

"And  so,  commercial  fraternity  is  a  very  real  and 
very  great  blessing,  and  a  very  near  and  very  great 
need.  And  the  great  power  of  commercial  fraternity 
is,  that  the  man  who  doesn't  play  the  game  fairly,  can- 
not have  that  fraternity;  and  the  man  who  does  play 
the  game  fairly  has  it  in  abundance." 

Much  work,  in  the  promotion  of  co-operation,  has 
been  done  through  local,  state,  sectional  and  national 
organizations,  which  serve  to  elevate  the  standard  of 
commercial  morality,  while,  at  the  same  time,  making 
possible  the  enhancement  of  profits  to  a  marked  de- 
gree. 

142 


11 


CO-OPERATION 

The  increase  of  mutual  confidence  among  business 
men  will  do  much  to  bring  about  a  better  condition  of 
affairs. 

Remember  that  your  competitor  is  probably  as  far 
above  dishonorable  actions  and  trickery,  cunning  prac- 
tices as  you  are. 

Now,  it  is  not  hard  for  men  (who  are  men)  to  get 
together  in  a  friendly  spirit.  All  have  many  interests 
in  common,  and  there  is  much  to  gain  through  co-oper- 
ation. 

Business  men  must  co-operate  if  they  are  to  be 
progressive  and  up-to-date. 

The  man  who  knows  so  much  that  he  is  not  willing 
to  discuss  business  matters  with  his  fellows,  is  starting 
into  a  decline  and  he  will  be  behind  the 
times  before  he  knows  it. 

It  is  to  be  hoped  that  the  business 
men  of  the  United  States,  the  majority 
of  whom  are  good  men,  intelligent  and 
educated  men,  will  drop  all  feelings  that  they  may  en- 
tertain against  their  competitors,  throw  out  thoughts 
of  good  will  and  confidence,  get  together  and  have  little 
friendly  meetings. 

They  will  find  upon  closer  acquaintance,  that  there 
is  much  to  admire  in  men  whom  they  thought  had  not 
a  single  redeeming  feature,  and  will  realize  that  after 
all  every  one  is  working  with  the  same  object  in  view, 
and  that  is  to  live,  so  there  should  be  a  more  universal 
adoption  of  the  motto :  "Live,  let  live  and  help  others 
to  live." 

As  a  few  of  the  many  practical  ways  in  which  this 
spirit  of  co-operation  may  be  applied,  we  might  suggest 

143 


Ck>-operation 
Essential 


i 


t 


PRICE     MAINTENANCE 

the  discussion  of  the  credit  standing  of  common  cus- 
tomers together  with  interchange  of  information  re- 
garding the  standing  of  such  customers. 

There  could  also  be  a  free  interchange  of  infor- 
mation about  employees  who  had  been  discharged  for 
cause,  so  that  there  would  be  economy  in  those  in  the 
same  line  of  business  not  having  to  suffer  loss  repeat- 
edly from  the  same  unreliable  or  dishonest  employees. 

Besides  these  items  which  need  attention,  there 
are  many  other  necessary  business  reforms  which 
would  save  to  the  men  in  the  business  a  little  money 
and  at  the  same  time  reduce  the  strain  to  which  they 
are  subjected. 

For  instance,  in  the  absence  of  friendly  meetings 
among  competitors,  exchange  of  confidence,  etc.,  the 
individual  is  doubless  much  worried  in  the  event  of 
business  slacking  off,  and  on  such  occasions  prices  are 
often  cut  in  an  endeavor  to  get  business  that  did  not 
exist — each  one  believing  that  the  other  was  doing 
it  all. 

Now  under  friendly  arrangements,  all  can  have 
a  fair  idea  of  what  is  going  on  because  conditions  are 
discussed  honestly  and  frankly.  When  dull  times  come 
and  the  trade  does  not  reach  a  fair  volume,  it  is  use- 
less to  try  to  force  business  when  there  is  no  business^ 
but  through  co-operation  men  may  look  for  the  cause 
elsewhere,  and  it  is  often  found  to  be  attributable  to 
general  conditions. 

Indeed,  in  times  of  depression,  it  has  invariably 
been  the  expression  in  various  lines  of  business,  that 
the  percentage  of  expense  increases  with  a  decreased 
volume  and  that  instead  of  cutting  prices,  it  is  neces- 

144 


The  Get- 

Together  Spirit 

Profitable  and 

Pleasant 


CO-OPERATION 

sary  in  order  to  defray  expense  to  get  a  little  better 
price  than  when  one  is  doing  a  heavy  volume  of  busi- 
ness. 

Already,  we  see  the  harvest  of  a  more  kindly  and 
brotherly  feeling,  and  personalities  have  not  the  same 
stress  laid  upon  them  as  in  former 
years.  It  is  impossible  to  regard  with 
the  same  continued  distrust  the  man 
whom  you  meet  socially  and  with  whom 
you  sit  at  the  same  social  board.  It  is 
not  only  in  the  Arab's  tent  that  bread  and  salt  are  a 
pledge  of  friendship,  and  a  great  change  is  made  in  a 
man's  attitude  toward  a  competitor  simply  by  a  social 
meeting.  "The  old  order  changeth,  giveth  place  to 
new,"  and  men  begin  to  realize  that  common  benefits 
accrue  from  co-operation  and  not  from  that  false  prov- 
erb which  professional  men  are  ever  quoting,  "Compe- 
tition is  the  life  of  trade." 

Men  in  the  same  line  of  business,  co-operating 
through  lunch  clubs  or  other  friendly  meetings,  should 
endeavor  to  be  very  frank  with  one  another,  and  when 
called  upon  to  explain  some  act  that  does  not  appear 
to  be  quite  friendly,  there  should  be  the  freest  spirit  of 
frankness  and  honest  explanation  which  in  almost 
every  case  will  be  entirely  satisfactory. 

Under  such  favorable  circumstances,  the  feeling 
of  mutual  distrust  should  give  way  to  one  of  friendly 
co-operation  and  there  should  be  an  elimination  of  petty 
local  and  sectional  relations  in  favor  of  a  broad  fra- 
ternal feeling. 

Despite  any  general  feeling  which  may  have  ex- 
isted, and  an  impression  that  if  there  were  ever  un- 

145 


»l 


I 


PRICE     MAINTENANCE 

righteous  men,  they  are  your  competitors,  the  fact 
remains  that  you  are  all  in  the  business  to  earn  a  fair 
profit  on  the  capital  and  brains  invested,  and  that  your 
stockholders  often  have  little  sympathy  with  trade 
jealousies,  but  what  they  are  after  is  profits,  and  if  in 
order  to  insure  the  securement  of  profits,  it  is  advisable 
and  thought  wise  to  co-operate  in  a  friendly  way  with 
your  competitors,  it  is  certain  that  they  would  answer 
in  no  unmistakable  terms,  "Co-operate." 

Again,  will  the  stockholders  accept  as  an  explana- 
tion at  the  end  of  the  year  for  no  dividends,  your  state- 
ment that  such  and  such  a  house  in  the  same  line  of 
business,  has  been  doing  so  and  so,  and  that  you  have 
been  punishing  them  by  a  cut  price  war?  Will  the 
lack  of  dividends  in  such  a  case  satisfy  those  depend- 
ent upon  the  business  for  a  livelihood?    I  think  not. 

When  there  are  friendly  relations  between  com- 
petitors, salesmen  are  quick  to  feel  the  pulse  of  affairs, 
and  they  promptly  realize  that  under  more  favorable 
conditions,  in  view  of  friendly  relations  between  com- 
peting houses,  that  any  reports  that  they  may  make 
of  improper  action  on  the  part  of  a  competitor,  will  be 
thoroughly  investigated. 

If  the  managers  of  the  competing  houses  are  co- 
operating nicely,  Smith  will  telephone  Jones  and  say. 
"John,  one  of  my  men  seems  to  think  that  you  have 
made  an  impossible  price  on  such  and  such  an  inquiry. 
What  about  it?" 

Then  Jones  will  answer  frankly,  and  Smith  will 
tell  his  salesman  that  he  has  investigated  carefully  and 
feels  that  the  report  must  be  erroneous. 

The  other  day  a  case  came  to  my  notice  where 

146 


CO 


bo 
P. 

0) 


O 

•  •-4 

ai 
X 


< 

OQ 
U 

'o 

o 
en 

J3 


CO-OPERATION 


I 


there  was  a  bid  in  for  certain  supplies  for  a  building 
operation. 

The  salesman  came  to  the  manager  and  said  they 
were  $12.00  a  house  higher  than  their  competitor.  The 
sales  manager  called  his  competitor  on  the  telephone 
and  the  competitor  said  their  bid  was  a  certain  figure, 
which  happened  to  be  $1.00  a  house  higher  than  his 
price. 

It  is  quite  evident  in  this  case,  that  this  friendly 
feeling  saved  them  considerable  money  which  other- 
wise would  have  been  thrown  away  into  the  hands  of 
a  designing  and  unscrupulous  buyer. 

Sometimes  it  has  been  the  practice  of  competitors 
to  meet  at  lunch  or  otherwise  and  discuss  the  question 
of  the  prices. 

In  the  preceding  pages,  we  have  touched  upon  this 
question  as  to  its  legality. 

A  prominent  lawyer,  who  has  made  a  specialty 
of  corporation  law,  was  recently  consulted  and  asked 
the  following  question: 

"A  number  of  manufacturers  of  a  certain  line  of 
goods,  representing  approximately  70%  of  the  output, 
have  formed  a  club,  the  object  of  which  is  to  build  up 
profits  in  a  certain  line  of  business.  They  have  no 
binding  price  agreements,  but  they  do  meet  occasion- 
ally and  confer  as  to  prices  at  which  they  propose  to 
sell  and  do  notify  one  another  of  their  intentions  to 
sell  at  certain  prices  with  the  understanding  that  there 
is  absolutely  no  contract  and  no  agreement  further  than 
that  mentioned.  Are  these  manufacturers  transgress- 
ing the  Sherman  Law?" 

He  replied  as  follows: 

147 


J»ii 


PRICE     MAINTENANCE 

"I  answer  this  question  negatively ;  but  must  nec- 
essarily add  thereto  a  word  of  caution. 

"I  know  nothing  whatever  which  prevents  manu- 
facturers from  conferring  together  concerning  mat- 
ters of  mutual  interest,  stating  to  one  another  their 
views  and  even  stating  their  intention  as  to  prices. 

"If  the  matter  stopped  there,  no  trouble  would  en- 
sue. 

"Under  this  state  of  facts,  however,  I  am  very 
certain  that  any  court  nowadays,  would  in  case  of  an 
averment  of  conspiracy  to  regulate  prices,  let  the  facts 
go  to  a  jury  for  the  purpose  of  having  it  determined 
whether  or  not  there  was  really  an  agreement  to  abide 
by  the  prices  named. 

"If  the  jury  found  that  there  was  an  agreement, 
even  though  there  was  none,  the  court  would  probably 
not  interfere  with  the  verdict. 

"There  is  always  danger  of  someone  misunder- 
standing the  agreement  and  misstating  it  by  reason 
thereof,  and  also  of  someone  willfully  misstating  it. 

"Given  testimony  as  to  conference  and  naming  of 
prices,  and  a  pretty  general  following  of  these  prices 
by  all  the  manufacturers,  the  foundation  of  a  charge  of 
actual  agreement  would  be  laid,  sufficiently  to  make 
it  pretty  certain  what  a  jury  would  do. 

"As  a  matter  of  law,  however,  such  conduct  as  you 
have  stated,  does  not  amount,  in  itself,  to  a  violation 

of  the  law." 

The  practice  in  some  instances  has  been  to  dis- 
cuss prices  informally,  and  the  representative  of  one 
house  (possibly  a  large  factor  in  the  business)  would 
say,  "Well,  gentlemen,  I  will  send  you  the  prices  which 

148 


t 


CO-OPERATION 

I  am  going  to  ask  for  my  product,  and  I  shall  consider 
myself  in  honor  bound  to  notify  you  in  case  I  should 
see  fit  to  ask  lower  prices  for  my  goods.  I  hope  that 
you  will  treat  me  in  the  same  manner." 

This  has  operated  satisfactorily  even  in  large  lines 
of  business  where  the  total  value  of  the  product  would 
be  in  the  neighborhood  of  $18,000,000  or  $20,000,000 
per  annum. 

A  plan  of  conduct  within  the  law  and  simple  and 
effective  in  operation  would  be  as  follows:  Granted 
that  there  existed  a  friendly  feeling  among  those  in 
the  same  line  of  business  and  a  willingness  to  credit 
all  with  honesty  of  purpose,  and  truthfulness  (at 
least  temporarily),  let  there  be  a  meeting  for  the 
purpose  of  outlining  a  plan  of  action  which  would 
tend  to  improve  conditions.  Let  each  man  offer 
to  send  his  price  lists  to  each  and  all  of  his 
competitors  and  to  notify  them  of  any  and  all 
changes  or  of  any  intention  on  his  part  to  deviate 
under  certain  conditions  or  in  special  cases.  This 
would  be  done  individually  and  with  no  agreement  or 
understanding  on  the  part  of  any  to  sell  at  equal  or 
higher  or  lower  prices.  The  aim  would  be  to  conduct 
business  in  the  light  and  to  be  able  to  check  up  the 
statements  of  foxy  buyers. 

With  this  basis  there  could  be  a  free  communica- 
tion between  the  houses  and  inquiries  could  be  freely 
made  as  to  the  correctness  of  rumors  heard  in  the 
course  of  business. 

Frequent  meetings  are  good,  and  it  is  a  happy 
choice  to  have  an  able  chairman  to  avoid  any  unkind 
insinuations,  or  charges  against  a  member  and  to  hold 

149 


1 


PRICE     MAINTENANCE 

in  check  all  disputes  and  "post  mortems"  held  over 
lost  orders. 

If  the  business  is  one  other  than  a  regular  mer- 
chandizing business  and  orders  are  solicited  by  esti- 
mating or  bidding,  it  might  be  helpful  to  make  it  a 
practice  to  send  the  secretary  (who  had  better  be  a 
man  not  otherwise  connected  with  the  business)  a 
copy  of  all  estimates  and  bids.  Then,  if  so  directed, 
the  secretary  may  send  to  all  bidders  a  copy  of  the 
bids  of  others  competing  for  the  business. 

There  would  be  no  agreement  as  to  prices  charged 
in  estimating,  but  the  present  deceit  practiced  by  buy- 
ers would  largely  be  checked  by  such  a  system. 

No  plan  or  system  such  as  the  one  just  suggested, 
or  any  other  mode  of  operation  will  serve  to  guar- 
antee honesty  and  fairness.  Narrow-minded  men, 
crooked  men,  men  who  are  "money  mad"  and  blind  to 
honesty,  can  destroy  the  profits  of  any  business  into 
which  they  enter,  but  a  fair  trial  and  a  fair  chance 
for  this  or  any  other  system  which  is  within  the  law 
can  hardly  fail  to  prove  effective. 

When  men  are  merely  bound  by  honor  as  gentle- 
men and  are  not  coerced  or  forced  into  a  proposition, 
they  have  been  found  to  be  more  honest  and  fair  than 
when  they  have  a  money  penalty  hanging  over  their 
heads,  or  some  other  form  of  penalty  to  force  them  to 
"be  good." 

Of  course,  there  is  no  means  in  such  cases  of  com- 
pelling any  one  to  co-operate  and  business  may  be  lost 
by  reason  of  some  people  who  will  not  consent  to  do 
the  fair  thing,  but  the  entire  market  may  be  affected 
if  any  one  seller  commits  an  unbusinesslike  act  and  the 

150 


/(• 


CO-OPERATION 

consequent  demoralization  in  prices  will  mean  quite  a 
loss. 

A  member  of  the  bar,  who  has  had  considerable 
experience  in  corporation  law,  said  lately,  "I  do  not  be- 
lieve that  it  was  the  intention  of  the  framers  of  the 
Sherman  Anti-Trust  law  to  prevent  business  men  from 
having  such  understandings  as  would  prevent  business 
suicide,"  but  he  said  in  talking  to  a  business  man  who 
had  considerable  experience,  "The  trouble  with  you 
gentlemen  is,  that  two  or  three  of  you  get  together  and 
maintain  fair  prices, — ^you  are  bothered  by*  the  fellow 
on  the  outside  and  then  in  order  to  make  your  con- 
ditions more  perfect,  you  go  after  him  and  try  to  force 
him  to  do  the  same  as  you  are  doing.  That  constitutes 
violation  of  the  law  as  you  are  attempting  to  interfere 
with  another  man  in  the  conduct  of  his  business. 

"I  know  it  is  important  that  such  a  man  should  co- 
operate, but  you  are  up  against  conditions  where  you 
must  either  get  along  without  his  co-operation  or  aban- 
don your  attempt  to  get  fair  prices. 

"You  cannot  attempt  to  force  a  man  who  won't 
co-operate.    If  you  do,  you  will  get  into  trouble." 

These  well  directed  efforts  to  reasonably,  sensibly 
regulate  the  conduct  of  business  and  to  avoid  giving 
goods  to  customers  without  a  profit,  have  done  much 
to  steady  the  market  and  have  had  salutary  effect  on 
general  prices. 

Businesses  have  been  saved  from  almost  inevitable 
ruin,  and  thousands  of  dollars  of  profits  have  been 
made,  where  they  otherwise  would  have  been  need- 
lessly sacrificed,  by  sensible  co-operation  on  the  part 
of  those  engaged  in  business. 

151 


\\ 


4 


PRICE    MAINTENANCE 

Of  course,  the  strength  of  such  a  co-operation  de- 
pends on  a  spirit  of  fairness,  of  influence  and  of  moral 
suasion  on  the  part  of  those  who  desire  to  get  a  profit 
over  those  who  are  not  so  strong  on  the  profit  propo- 
sition. 

While  it  may  not  always  be  possible  to  induce  all 
distributors  to  co-operate  because  there  are  in  every 
market,  those  men  who  seem  to  be  of  a  narrow  mind 
and  who,  for  one  reason  or  another,  hold  aloof  from 
co-operation,  either  because  they  are  obstinate  or  be- 
cause there  is  a  yellow  streak  down  their  backbone. 

It  may  be  that  the  one  who  refuses  to  co-operate 
seeks  to  make  capital  of  his  "independence,"  but  it  also 
may  develop  that  he  is  one  of  the  class  to  whom  John 
D.  Rockefeller,  head  of  the  Standard  Oil  Company, 
referred  in  his  article  which  appeared  in  the  World's 
Work : 

"In  my  early  days  men  acted  just  as  they  do  now, 
no  doubt.    When  there  was  anything  to  be  done  for 

trade  betterment  almost  every  man  had 
some  good  reason  for  believing  that  his 
case  was  a  special  one,  different  from  all 
the  rest.  For  every  foolish  thing  he 
did,  or  wanted  to  do,  for  every  unbusi- 
nesslike plan  he  had,  he  always  pleaded  that  it  was  nec- 
essary in  his  case.  He  was  the  one  man  who  had  to 
sell  at  less  than  cost,  to  disrupt  all  the  business  plans 
of  others  in  his  trade,  because  his  individual  position 
was  so  absoluetly  different  from  all  the  rest.  It  was 
often  a  heart-breaking  undertaking  to  convince  those 
men  that  the  perfect  occasion  which  would  lead  to  the 

152 


BockefeUer's 
Bemarks  on 
Co-operation 


/ 


CO-OPERATION 

perfect  opportunity  would  never  come,  even  if  they 
waited  until  the  crack  o'  doom." 

Again,  if  a  jobber  or  retailer  in  a  market,  does 
not  see  fit  to  maintain  prices,  is  it  not  probable  that  the 
manufacturers  of  the  goods  handled,  could  be  easily 
induced  to  urge  such  a  firm  into  co-operation  as  few 
manufacturers  to-day  desire  to  have  their  goods  dis- 
tributed on  a  basis  which  is  not  considered  fair  by  the 
entire  trade. 

Also,  through  friendly  relations  with  the  jobbers 
or  manufacturers  in  other  sections,  there  could  be  co- 
operation and  a  spirit  of  fair  play  between  them  so 
that  those  from  the  other  sections  should  not  invade 
and  cut  prices,  as  has  sometimes  been  done  where  job- 
bers are  keen  for  a  proper  regulation  of  profits  in  their 
own  vicinity,  but  show  little  regard  for  their  brother- 
merchant  when  making  sales  in  territory  other  than 
that  covered  by  their  own  local  understanding. 

With  almost  all  men,  the  instinct  of  self-interest 
predominates  strongly  as  against  the  interest  of  their 
fellows,  but  if  such  men  will  take  sufficient  time  to 
study  the  question,  it  is  certain  that  they  will  be  con- 
vinced that  their  own  self-interest  will  be  advanced  by 
co-operation. 


153 


M 


CHAPTER  XVII. 

RESALE   PRICES. 

Where  the  selling  prices  of  the  product  of  a  man- 
ufacturer have,  by  unrestrained  competition  and  sense- 
less competition,  been  brought  to  a  point  where  they 
are  without  profit  to  the  distributor,  the  manufacturer 
is  often  approached  by  dealers  who  are  interested  in 
his  goods  and  is  asked  to  take  some  steps  to  better  the 
conditions  surrounding  the  sale  of  his  product, — ^thus 
relief  is  often  found  from  profitless  conditions  by  the 
establishment  of  a  resale  price  by  the  manufacturer. 

A  resale  price  is  a  price  fixed  by  the  manufacturer, 
below  which  it  is  stipulated  the  distributor  shall  not 
sell.  Or,  one  may  say,  that  a  resale  price  is  an  agree- 
ment between  the  manufacturer  and  the  wholesaler  or 
retailer  or  both  whereby  the  manufacturer  specifies 
the  minimum  price  at  which  he  will  permit  his  goods 
to  be  re-sold. 

Resale  prices  are  not  advocated  generally,  for 
where  the  distributors  have  been  making  a  fair  profit 
in  connection  with  the  sale  of  the  commodities  which 
they  handle,  it  is  unnecessary  to  surround  their  sale 
with  any  particular  conditions. 

It  might  be  said  further  in  this  connection  that  the 
tendency  on  the  part  of  many  of  the  manufacturers  in 
establishing  a  resale  price  for  the  merchant  is  to  make 
the  price  quite  a  low  one  and  the  percentage  of  net 

154 


RESALE  PRICES 

profit  on  goods  sold  on  resale  basis,  is  apt  to  be  less 
than  if  the  goods  were  not  subject  to  excessive  compe- 
tition and  were  on  an  open  basis. 

It  may  be  said,  therefore,  that  resale  prices  are 
not  advocated  generally  on  all  goods,  but  that  a  resale 
plan  is  only  desirable  on  goods  on  which  profit  has 
vanished  by  reason  of  unrestricted  competition  and 
over-anxiety  for  business. 


Necessity  for  Control  of  Distributors. 

Some  merchants  have  contended  that  if  they  buy 
a  commodity  and  pay  for  it,  they  may  sell  it  at  any 
price  they  see  fit.  This  is  true  to-day  on  patented 
goods  not  sold  under  resale  conditions,  but  where  pat- 
ented goods  are  purchased  and  resale  conditions  are 
made  known  at  the  time  of  the  sale,  the  buyer  of  such 
goods  is  bound  by  the  said  conditions. 

At  first  thought  this  may  appear  to  be  un-Ameri- 
can and  contrary  to  public  policy.  The  Supreme  Court 
of  the  United  States  considered  this  particular  phase 
against  Sidney  Henry  et  al,  and  arrived  at  the  conclu- 
sion and  decision  as  indicated  by  the  following:  The 
defendants  who  were  on  trial  for  contributory  infringe- 
ment of  patent,  claimed  that  it  was  unfair  that  the 
patentees  should  be  allowed  to  dictate  the  selling  price 
on  a  piece  of  goods  because  such  conditions  might  in- 
convenience the  public  and  involve  innocent  people  in 
unwitting  infringement. 

The  court  ruled  that  the  public  always  was  free 
to  take  or  refuse  patented  articles  on  the  terms  im- 

155 


t. 


PRICE    MAINTENANCE 

posed.  Said  the  Court,  "If  the  conditions  be  too  oner- 
ous or  not  in  keeping  with  the  benefits,  the  patented 
article  will  not  find  a  market." 

The  public  by  permitting  an  invention  to  go  un- 
used loses  nothing  which  it  had  before  and  when  the 
patent  expires  the  public  will  be  free  to  use  the  inven- 
tion without  compensation  or  restriction. 

Thus,  it  may  be  seen  that  the  fixing  of  resale  con- 
ditions is  no  hardship,  but  is  a  protective  measure  and 
if  any  are  unwilling  to  be  bound  by  resale  conditions, 
they  need  not  purchase  the  goods. 

It  may  be  pertinent  at  this  juncture  to  say  that  the 
wholesaler  and  retailer  are  merely  the  agents  of  the 
manufacturers  whose  goods  they  handle,  and  it  is 
proper,  both  from  a  moral  and  legal  standpoint,  that  a 
manufacturer  should  be  permitted  to  oblige  others  to 
respect  his  property  rights.  The  manufacturer  has  full 
authority  to  dispose  of  his  goods  as  he  pleases,  and  if 
for  better  service  of  the  public,  for  economy  and  for 
convenience  he  employs  middlemen  as  distributors  for 
him,  acting  as  his  agents  (in  fact,  if  not  in  law)  should 
he  not  have  the  right  to  compel  them  to  handle  his  pro- 
ducts as  he  does  or  would  do  himself? 

Possibly,  if  all  the  distributors  were  fair  and 
equally  intelligent  regarding  the  overhead  expenses 
and  desirous  of  getting  a  profit,  no  control  over  the 
resale  price  would  be  necessary,  but  as  is  well  known 
this  is  not  the  case.  Almost  all  merchants  start  out 
to  get  a  profit,  but  some  become  scared  by  competition 
and  the  situation  gradually  becomes  so  complicated 
that  each  one  does  things  which  are  so  improper  and 
unprofitable  as  to  require  a  controlling  hand. 

156 


RESALE  PRICES 

Nor  do  we  think  that  the  exercise  of  control  is 
unnatural  or  is  an  admission  of  weakness  on  the  part 
of  those  who  control,  viz. :  the  wholesalers  and  retail- 
ers. 

Students  of  sociology  and  psychology  tell  us  that 
the  factors  which  govern  the  securement  of  things  de- 
sirable, are  to  a  great  extent,  governed  by  competi- 
tion. Indulging  in  this  competition,  we  find  men  whose 
temperaments  are  varied.  Some  temperaments  want 
the  risks  great  and  the  prizes  big,  even  if  they  must 
be  few.  Other  temperaments  want  risk  eliminated, 
honesty  assured  in  practice  and  compensation  guar- 
anteed to  all. 

So  long  as  both  temperaments  are  present  in  men, 
it  is  safe  to  say  that  the  game  will  be  kept  interesting 
by  preserving  something  of  the  risk. 

The  prizes  should  go  to  those  who  have  trained 
most  consistently,  who  have  played  hardest,  but  withal 
have  played  honestly  and  fairly. 

Cheating  should  be  eliminated,  and  violation  of 
the  rules  should  be  followed  immediately  by  disquali- 
fication. 

The  establishment  of  the  rules  of  the  game  lies 
within  the  province  of  the  public  and  the  honest  busi- 
ness men. 

Seeing  that  the  good  or  ill  fortune  of  the  player 
depends  not  only  on  his  skill  and  means,  but  also  on 
the  rules  of  the  game,  and  how  they  are  respected,  it  is 
worth  while  to  consider  the  bearing  on  the  welfare  of 
the  community,  or  rules  which  would  have  for  their 
purpose  the  regulation  of  business  by  fair  and  equi- 
table means. 

157 


M 


PRICE    MAINTENANCE 

Then,  when  proper  rules  are  compiled,  it  should 
be  remembered  that  non-enforcement  will  debauch  the 
game. 

Failure  to  uphold  the  rules  of  the  game,  failure  to 
enforce  the  laws  governing  proper  business  inter- 
course, is  a  form  of  law-impotence  which  loosens  the 
masonry  of  good  business  and  menaces  the  mainte- 
nance of  a  fair  schedule  of  prices. 

In  enforcing  the  rules,  no  favoritism  should  be 
displayed.  Those  who  cut  prices  generally  try  to  prac- 
tice general  denial  and  bluffing  it  out,  and,  especially 
resent  any  attempt  at  restraint. 

Restraint  in  such  cases,  breeds  a  resistance  cor- 
responding to  the  loss  of  the  special  privilege  it  im- 
poses. 

When  we  go  to  short-chain  the  price  cutter  and 
place  him  on  an  even  keel  with  his  fellows,  he  snaps 
like  a  jackal  for  what  he  calls  "liberty"  to  do  as  he 
sees  fit,  but  what  he  really  wants  to  retain  is  the 
"license"  to  harm  those  in  his  line  of  business  by  un- 
derhanded methods. 

The  circle  of  opportunity  for  business  men  is  nar- 
row enough  as  it  is,  and  to  suffer  the  big  player  to  vio- 
late the  rules  of  the  game  unpunished  is  doubly  dan- 
gerous. 

Those  who  handle  the  executive  end  of  price  main- 
tenance plans  should  brook  no  favoritism  or  compro- 
mise. 

Future  business  welfare  demands  men  of  granite 
at  the  strategic  points.  By  themselves,  without  rules, 
honest  men  can  get  no  foothold  at  the  strategic  points 
where  conditions  are  made,  where  the  weal  and  woe 

158 


RESALE   PRICES 

of  both  business  men  and  public  is  determined.  With- 
out aid,  they  cannot  maintain  themselves  in  these  com- 
petitive fields. 

It  is,  therefore,  of  prime  importance  to  establish 
and  enforce  rules  which  will  serve  to  lift  the  plane  of 
competition. 

Already  in  banking  we  see  a  business,  once  the 
happy  hunting  ground  of  swindlers,  which  by  regula- 
tion, has  come  to  be  a  field  for  honorable  men. 


Why  Should  the  Manufacturer  Concern  Himself  with 
the  Price  at  Which  Goods  Are  Resold? 

Formerly  the  manufacturers  felt  that  their  inter- 
est in  the  goods  ceased  immediately  on  their  sale  to 
their  customer.  There  are  still  some  manufacturers 
to-day  who  hold  this  same  opinion.  Some  manufac- 
turers have  expressed  the  belief  that  it  would  be  a 
piece  of  impertinence  on  their  part  to  tell  their  cus- 
tomer what  he  should  do  with  the  goods  after  he  has 
purchased  them. 

We  have  already,  in  this  work,  treated  upon  that 
phase  of  the  situation.  The  manufacturers  have  a 
direct  interest  in  the  manner  in  which  their  customer 
is  conducting  his  business,  and  of  the  influence  exerted 
by  him  upon  market  conditions,  and  upon  his  competi- 
tors. It  is  of  this  that  if  the  soundness  and  profitable- 
ness of  those  encouraged  in  distributing  manufactured 
products  is  adversely  affected  the  manufacturers  will 
find  their  line  of  customers  in  such  a  line  of  business 
to  be  poorer  risks  from  a  credit  standpoint. 

Moreover,  every  manufacturer  is  directly  inter- 

159 


PRICE    MAINTENANCE 

ested  in  having  the  middle  men  who  distribute  his  pro- 
duct, represent  him  aggressively;  they  want  their  dis- 
tributors to  spend  their  time,  money  and  brains  in  pro- 
moting the  sale  of  their  goods;  they  want  these  dis- 
tributors to  flourish,  so  that  the  sale  of  the  goods  may 
eventually  be  increased,  and  that  the  credit  standing 
of  those  in  the  industry  shall  be  of  the  best  character. 

On  the  other  hand,  if  the  manufacturers  take  no 
interest  in  their  product  after  it  has  left  their  hands, 
and  are  indifferent  as  to  the  manner  in  which  it  is 
marketed,  it  is  not  at  all  improbable  that  from  cut  prices 
and  unrestricted  competition,  the  conditions  surround- 
ing the  resale  of  the  goods  will  become  so  unsatisfac- 
tory and  unprofitable  that  the  distributor  will  decline 
to  further  continue  to  handle  such  goods,  and  he  will 
drop  its  sale,  closing  to  the  manufacturer  a  channel 
of  distribution,  and  making  the  public  suffer,  by  ren- 
dering it  difficult  to  secure  the  goods  at  all. 

A  case  is  on  record  where  a  large  manufacturer  of 
horse  shoe  nails  permitted  the  resale  conditions  to  be- 
come so  onerous  and  distasteful  and  unprofitable  to  the 
distributors,  that  they  ceased  handling  his  goods  en- 
tirely in  one  portion  of  the  country  by  individual  con- 
sent, and  the  manufacturer,  continuing  to  follow  a 
policy  of  indifference  with  a  product  of  merit,  in  the 
course  of  eight  or  ten  years,  found  his  business  had 
drifted  away  from  him,  and  had  gone  to  manufacturers 
whose  policy  was  more  in  keeping  with  the  progress 
of  the  times. 

In  other  cases,  where  manufacturers  assumed  an 
indifferent  attitude  toward  the  welfare  of  their  dis- 
tributors, and  where  efforts  to  dictate  the  resale  price 

160 


/ 


RESALE  PRICES 

have  been  made  in  a  half-hearted  manner,  and  not  suc- 
cessfully carried  through,  it  has  been  the  practice  of 
the  manufacturers  to  permit  the  trade  to  sell  at  the 
best  prices  obtainable,  which  prices  were,  in  many 
cases,  factory  cost,  and  then  to  rebate  their  customers 
at  the  end  of  the  year,  ly^  or  10%,  so  that  they  might 
not  be  entirely  at  a  loss  by  reason  of  having  handled 
the  goods. 

Cut  Prices  Encourage  Sale  of  Imitation  Goods. 

Where  the  manufacturers  of  a  line  of  goods  of 
known  reputation  continually  ignore  the  repeated  re- 
quests of  their  customers  for  the  establishment  of  a 
resale  price,  they  can  find  no  fault  with  them  for  tak- 
ing up  the  sale  of  competing  lines  or  imitation  pro- 
ducts, where  the  chances  for  profit  are  greater. 

A  prominent  jobber  handled  a  line  of  goods  of  es- 
tablished reputation  and  identity,  but  conditions  had 
made  it  impossible  to  secure  a  good  profit  in  connection 
with  the  sale  of  these  goods. 

The  jobber  accordingly  wrote  the  manufacturer 
in  question  as  follows,  and  we  leave  it  to  you  to  decide 
if  the  argument  which  this  jobber  presents  should  not 
be  most  convincing: 

"The  writer  has  charge  of  the  purchasing  depart- 
ment of  this  business,  and  it  has  been  his  pleasure  to 
purchase  from  you  yearly,  thousands  of  dollars'  worth 
of  goods. 

"The  management  is  more  insistent  than  ever  on 
handling  first-class  goods  which  makes  us  a  fair  profit, 
but  unfortunately  your  line  is  not  profitable  with  us 
nor  has  it  been  for  five  or  ten  years  past 

161 


PRICE    MAINTENANCE 

"Now,  let  us  tell  you  a  bit  of  history. 

"We  have  been  laboring  for  a  number  of  years 
without  very  much  profit,  some  years  coming  through 
without  any  profit.  Some  boom  years  were  quite  profit- 
able, while  the  poorer  years  absorbed  our  excess  profits 
of  the  good  year. 

"Our  average  return  from  the  business  has  been 
very  small  indeed.  We  have  suffered  from  the  price 
cutter,  but  thus  far  we  have  always  paid  our  bills  in 
full,  as  you  well  know,  while  some  of  the  price  cutters 
who  have  sold  our  goods  at  prices  which  we  could  not 
meet,  have  failed  in  business  and  on<^  of  the  fiercest 
we  had  to  contend  with  paid  you  and  other  manu- 
facturers thirty  cents  on  the  dollar. 

"We  have  charged  some  of  your  goods  to  custom- 
ers at  low  prices  and  no  matter  how  low  we  have 
charged  them,  we  have  received  complaints  and  have 
been  asked  for  credit  memos  which  we  have  been  forced 
to  grant,  thus  not  only  taking  away  a  reasonable  profit, 
but  putting  us  in  a  bad  light  with  our  customers. 

"We  do  not  feel  that  we  care  to  continue  to  meet 
this  unfair  competition  and  cut  prices  and  our  salesmen 
no  longer  have  the  heart  to  represent  a  line  which  is 
being  cut  to  pieces.  Up  to  the  present  writing  you  un- 
fortunately have  not  seen  fit  to  protect  us  by  estab- 
lishing a  resale  price. 

"You  can  relieve  this  bad  situation  in  a  lasting 
manner  by  doing  so,  and  we  hope  that  you  will." 

The  distributors,  individually  and  collectively, 
claim  to  be  anxious  to  maintain  prices  and  to  earn  a 
good  dividend  on  their  capital  invested. 

This  is  practically  true  of  a  great  majority  of 

162 


i 


RESALE   PRICES 

them,  but  unfortunately  there  are  some  weak-kneed 
brethren  who  either  lack  backbone  or  are  not  informed 
as  to  what  it  costs  them  to  conduct  their  business,  and 
who  find  it  impossible  to  maintain  a  profit-bearing 
price. 

Interest  of  the  Public  in  Price  Maintenance. 

There  has  been  expressed  by  many  who  are  not 
acquainted  with  business  conditions,  the  fear  that  man- 
ufacturers, in  fixing  the  resale  prices  at  which  their 
goods  should  be  sold  to  the  consumer,  would  fix  a  price 
which  would  involve  an  excessive  profit.  In  the  nature 
of  events,  and  as  has  been  demonstrated  by  actual 
prices  made,  the  manufacturers  who  have  fixed  resale 
prices  have  followed  the  policy  of  fixing  them  at  the 
lowest  possible  point  which  would  cover  the  expense 
of  distribution,  rather  than  a  high  point. 

These  manufacturers  have  had  to  bear  in  mind 
the  competition  of  other  manufacturers  of  similar  ar- 
ticles, for  the  fixing  of  a  price  on  a  particular  piece  of 
goods  does  not  mean  that  the  manufacturer  has  a  mon- 
opoly of  any  particular  class  of  merchandise,  but 
merely  that  he  is  dictating  the  selling  price  of  a  spe- 
cific type  of  a  general  class  of  merchandise. 

Price  maintenance  does  not  mean  higher  prices. 
It  merely  means  making  prices  uniform  in  all  places, 
and  at  all  times.  It  makes  more  easy  the  purchase  of 
goods,  for  when  there  is  a  price  dictated  by  a  manu- 
facturer, this  price  is  given  great  publicity ;  often  the 
price  is  printed  on  the  goods,  so  that  the  price  is  uni- 
form in  all  sections  of  the  country,  and  to  all  classes 
of  buyers. 

163 


PRICE    MAINTENANCE 

The  people  in  rural  communities  are  placed  in  a 
position  to  purchase  the  merchandise  at  the  same  price 
as  are  people  in  the  large  cities.  Every  consumer  is 
assured  that  they  will  not  be  overcharged,  and  in  this 
there  is  great  measure  of  satisfaction  and  comfort  for 
the  buyer. 

The  public  is  well  aware  of  the  fact  that  they  are 
not  compelled  to  buy  a  product  of  any  particular  manu- 
facturer, and,  therefore,  when  they  purchase  a  piece 
of  trade-marked  or  patented  goods,  on  which  there  is 
a  resale  price,  they  know  that  they  are  buying  it  at 
the  right  price. 

If  the  manufacturers,  wholesalers  and  retailers 
were  to  be  prevented  from  fixing  the  resale  price,  it 
would  undoubtedly  be  found  that  concerns  of  great 
size,  which  follow  the  policy  of  cutting  the  price  on 
standard  goods,  and  then  overcharging  on  other  goods, 
would,  by  their  unfair  methods,  put  the  rank  and  file 
of  merchants  out  of  business,  and  then  when  they  had 
accomplished  this  result,  the  field  would  be  open  for 
the  charging  of  higher  prices  than  they  could  obtain 
under  a  fair  price  maintenance  system,  regulated  by 
governmental  commissions,  if  it  be  desirable  and  prac- 
ticable. 

One  is  invited  to  a  wide  field  of  public  discussion, 
when  the  question  of  the  welfare  of  the  average  retailer 
and  wholesaler  is  considered.  Will  it  be  held  that  it  is 
better  for  the  merchandise  distributing  service  of  this 
country  to  be  in  the  hands  of  one  or  two  hundred 
gigantic  mail  order  houses,  catalogue  houses,  and  de- 
partment stores,  or  whether  the  country  shall  con- 
tinue having  its  merchandise  distributed  by  the  pres- 

164 


4>> 


RESALE   PRICES 

ent  system  of  500,000  merchants,  all  contributing  to 
the  prosperity  of  the  country,  and  to  the  prosperity  of 
the  local  communities  in  the  active  government,  over 
which  they  exercise  a  considerable  influence? 

Then  upon  the  welfare  of  these  500,000  merchants, 
is  dependent  the  business  of  thousands  of  manufac- 
turers, with  hundreds  of  thousands  of  employees,  ac- 
tually dependent  upon  the  results  flowing  from  the 
prosperity  of  the  merchandising  business  through  the 
country  for  their  employment  and  their  livelihood. 

The  centralization  of  merchandising  would  un- 
doubtedly result  in  the  centralization  of  manufacturers 
under  the  control  of  highly  capitalized  interests. 

These  remarks  barely  skim  the  surface  of  a  ques- 
tion which  is  of  great  importance  to  the  entire  coun- 
try. 


165 


I 

1 1 


CHAPTER  XVIII. 

PATENTED  ARTICLES. 

On  all  goods,  the  manufacture  and  sale  of  which 
is  covered  by  letters  patent,  the  manufacturer  oper- 
ating under  statutory  grant  from  the  government,  is 
legally  empowered  to  sell  such  articles  with  stipula- 
tions as  to  the  prices  at  which  they  shall  be  resold,  and 
also  to  make  any  other  restrictions  which  may  appear 
to  him  desirable  and  reasonable. 

The  patent  law  gives  to  the  patentee  and  his  legal 
representatives  for  the  term  herein  mentioned  (seven- 
teen years)  from  the  granting  of  the  same,  exclusive 
right,  privilege  and  liberty  of  making,  constructing, 
using  and  selling  to  others,  to  be  used,  said  invention. 

Under  the  laws,  the  patentees  are,  as  above  stated, 
given  the  sole  and  exclusive  right  to  manufacture  and 

use  the  patented  device,  and  may,  if 
they  so  desire,  sell  the  same  to  others 
with  or  without  restriction. 

The  principle  seems  to  have  been 
emphatically  laid  down  in  a  number  of 
decisions,  and  it  now  appears  to  be  accepted  by  the 
courts  of  the  country  that  "A  patentee  may,  in  selling 
or  licensing  his  patented  invention  for  sale,  impose 
such  conditions  as  he  desires,  and  that  anyone  abusing, 
with  knowledge  of  such  conditions,  is  bound  thereby." 

The  constitutional  right  under  which  the  manu- 

166 


Patent  Bights 
Are  Broad 


t 


PATENTED  ARTICLES 

facturer  of  patented  goods  operates,  as  accepted  and 
used  by  the  patent  office,  declares  that  if  inventive 
minds  are  not  stimulated  by  the  promise  of  a  substan- 
tial reward  and  protection  by  the  government  in  the 
enjoyment  of  such  rewards,  inventive  minds  may  fail 
to  produce  useful  things. 

The  government,  desiring  that  useful  inventions 
should  not  be  held  secret  with  the  originator  and  his 
heirs  and  assigns  until  the  end  of  time,  says  to  the 
inventor:  "We  will  protect  you  absolutely  in  the  right 
to  exclude  everyone  from  making,  using  or  vending 
the  article  patented  without  your  permission,  provided 
the  possession  of  this  right  is  yielded  at  the  end  of 
seventeen  years." 

This,  therefore,  is  a  government  monopoly,  and  is 
protected  by  the  courts  in  its  existence. 

A  decision  in  the  case  of  John  D.  Parks  &  Son  Co., 
V8,  Hartman,  153,  Federal  24,  reads  as  follows : 

"Articles  made  under  patents  may  be  the  subject 
of  contracts  by  which  their  use  and  price  in  sub-sales 
may  be  controlled  by  the  patentee,  and  that  such  con- 
tracts, if  otherwise  valid,  are  not  within  the  terms 
of  the  Act  of  Congress  against  restraint  of  trade  or  of 
Interstate  Commerce  or  the  rules  of  the  common  law 
against  monopolies  and  restraint  of  trade.  This  is  well 
settled,  but: 

"The  patent  grants  the  exclusive  right  to  make 
and  to  sell.  The  patentee  may  grant,  if  he  will,  an  un- 
restricted right  to  make,  to  sell  or  use  the  device  em- 
bodying his  invention  or  may  grant  only  a  restricted 
right  in  either  the  field  of  making,  using,  or  selling 
to  the  extent  that  he  restricts  these  separable  rights. 

167 


I 


PRICE    MAINTENANCE 

"The  article  is  not  released  from  the  domain  of 
the  patent,  and  anyone  who  violates  the  restrictions 
imposed  by  the  patentee,  with  notices,  is  an  infringer." 

It  is,  therefore,  demonstrated  that  the  final  result 
of  the  patent  laws  is  that  the  monopoly  is  a  substantial 
property  right  conferred  by  law  as  an  inducement  or 
stimulus  to  useful  invention  and  discovery,  and  that 
it  rests  with  the  owner  to  say  what  part  he  will  trans- 
fer to  others,  and  upon  what  terms  he  will  make  the 
transfer. 

In  a  recent  address  Mr.  Robert  E.  Shanahan,  of 
the  Bissell  Carpet  Sweeper  Company,  said : 

"We  had  occasion  some  time  ago  to  proceed  against 
an  English  merchant  for  cutting  our  prices,  and  the 
court  granted  us  an  injunction,  and  the  decision  of  the 
English  Justice  was  most  sweeping  in  the  recognition 
it  gave  to  the  right  of  the  manufacturer  of  a  patented 
article  to  fix  the  price  on  his  commodity.  Justice  Wills, 
of  the  English  Court,  in  summing  up  the  case,  stated 
as  follows :  The  sale  of  a  patented  article  carries  with 
it  the  right  to  use  it  in  any  way  that  the  purchaser 
■chooses  to  use  it,  unless  he  knows  of  restrictions.  If  he 
knows  of  restrictions,  and  they  are  brought  to  his 
mind  at  the  time  of  sale,  he  is  bound  by  them.  He  is 
bound  by  them  on  this  principle:  The  patentee  has 
sole  right  of  using  and  selling  the  articles;  and  he 
may  prevent  anybody  from  dealing  with  them  at  all. 
Inasmuch  as  he  has  the  right  to  prevent  people  from 
using  them  or  dealing  in  them  at  all,  he  has  the  right 
to  do  the  lesser  thing,  that  is  to  say,  impose  his  own 
conditions.  It  does  not  matter  how  unreasonable  or 
how  absurd  the  conditions  are;  it  does  not  matter  what 

168 


I' 


PATENTED  ARTICLES 

they  are ;  if  he  say  at  the  time  the  purchaser  proposes 
to  buy — Mind,  I  only  give  you  this  license  on  this  con- 
dition,' and  the  purchaser  is  free  to  take  it  or  leave  it 
as  he  likes ;  if  he  takes  it,  he  must  be  bound  by  the  con- 
ditions. This  seems  to  be  common-sense,  and  not  de- 
pendent on  any  patent  law  or  any  other  particular  law." 

Decision  of  Circuit  Court  of  Appeals,  Seventh  Cir- 
cuit, April  14th,  1903.  (See  page  424,  Vol.  123,  No. 
3,  "Federal  Reporter.") 

"The  owner  of  a  patent  who  manufactures  and 
sells  the  patented  article  may  reserve  to  himself,  as 
an  ungranted  part  of  his  monopoly,  the  right  to  fix 
and  control  the  prices  at  which  jobbers  or  dealers 
buying  from  him  may  sell  to  the  public,  and  a  dealer 
who  buys  *  *  *  with  knowledge  of  such  reser- 
vation, and  resells  in  violation  of  it,  is  an  infringer  of 
the  patent." 

Decision  of  Circuit  Court,  W.  D.  Pennsylvania, 
January  3,  1901.  (See  page  960,  Vol.  105,  No.  9, 
"Federal  Reporter.") 

"The  manufacturer  of  a  patented  article  has  the 
right  in  selling  same  to  jobbers  for  the  trade,  to  pre- 
scribe conditions  and  restrictions  to  govern  its  sub- 
sequent sale,  and  one  who  buys  from  a  jobber  with 
notice  of  such  conditions  and  restrictions  is  bound 
thereby,  and  for  their  violation  may  be  treated  as  an 
infringer,  notwithstanding  he  takes  the  goods  from 
the  first  purchaser  unconditionally  and  without  knowl- 
edge that  said  first  purchaser  signed  the  agreement, 
but  sells  in  violation  of  the  known  rules  of  patentee." 

A  representative  license  to  sell  patented  goods  on 

169 


1/ 


I 


PRICE    MAINTENANCE 

which  resale  prices  are  fixed   by  the   manufacturer, 
reads  as  follows : 

Gem  Fence  Ratchets  are  manufactured  under 
United  States  Letters  Patent,  and  can  lawfully  be  sold 
only  under  license  from  the  manufacturer.  Bona  fide 
retail  dealers  may  purchase  Gem  Fence  Ratchets 
from  authorized  jobbers  of  the  manufacturer  at  au* 
thoHzed  wholesale  prices,  and  a  limited  and  condi- 
tional license  to  resell  the  actual  ratchets  so  purchased 
at  authorized  retail  prices  will  be  implied  from  such 
purchase,  but  not  otherwise.  No  license  shall  be  im^ 
plied  from  a  purchase  at  less  than  the  retail  prices 
specified  herein.  Any  sale  made,  except  in  compliance 
with  the  foregoing  and  under  an  authority  thus  cre- 
ated, shall  constitute  an  infringement  of  the  aforesaid 
patents,  and  the  seller  shall  be  liable  to  suit  for  in- 
junction or  damages  or  both,  and  the  ownership  of  the 
ratchets,  so  purchased  or  sold  shall  be  forfeited  to  the 
holder  of  the  patents. 

No  Gem  Fence  Ratchets  shall  be  tagged,  marked 
or  displayed  for  sale  at  less  than  the  following  scale 
of  prices,  to  wit :     (Here  follows  schedule  of  prices.) 

No  Gem  Fence  Ratchets  shall  be  sold  or  offered 
for  sale  to  any  person  at  less  than  the  scale  of  prices 
prescribed  by  us. 

The  manufacturer  will  not  furnish  repairs  or  be 
responsible  for  any  Gem  Fence  Ratchets  sold  at  an 
unauthorized  price  or  by  an  unauthorized  person. 

This  announcement,  dated  June  1,  1910,  by  the 
manufacturers  under  patents  of  Gem  Fence  Ratchets. 

GEM  FENCE  RATCHET  COMPANY. 

170 


PATENTED  ARTICLES 

True,  the  rights  granted  under  the  patent  law  are 
broad  and  secure,  but  they  who  suppose  that  they  can 
use  the  patent  law  as  a  subterfuge  to  control  prices  are 
doomed  to  disappointment. 

The  government  looks  for  the  intent  of  such  plans 
and  if  intent  to  restrain  trade  can  be  established  the 
combination  will  be  quickly  dissolved. 

However,  acting  alone,  the  patentee  is  most  secure 
in  his  rights  as  hereinbefore  stated. 


171 


I 


f*    II 


CHAPTER  XIX. 

UNPATENTED  ARTICLES. 

The  control  of  resale  prices  by  the  manufacturer, 
is  in  many  cases  necessary  as  before  stated,  where 
through  unrestricted  competition  the  distributors  are 
not  making  sufficient  profit  even  to  cover  the  cost  of 
•distribution,  and  therefore,  in  order  to  preserve  the 
channels  of  distribution  in  a  healthy  condition,  the 
manufacturer  feels  it  necessary  to  make  some  provis- 
ion for  distributors*  compensation. 

In  many  cases,  this  has  taken  the  form  of  limited 
price  plans  by  which  the  manufacturer  dictated  the 
price  at  which  his  merchandise  should  be  resold. 

The  theory  formerly  was  that  the  manufacturer 
had  the  right  to  sell  or  to  refuse  to  sell  whom  he  liked, 
and  under  such  conditions  as  he  saw  fit  to  impose. 
This  was  upheld  by  the  State  Courts  and  by  the  United 
States  District  Circuit  Courts.  These  courts  held  that 
such  plans  did  not  create  monopolies  and  were  not  in 
undue  restraint  of  trade,  and  were  valid  so  long  as 
there  was  no  conspiracy  with  other  manufacturers; 
that  any  one  individtcal  manufacturer  acting  of  his 
own  accord  and  not  in  combination  with  others,  had 
a  perfect  right  to  surround  the  sale  of  his  goods  with 
such  restrictions. 

On  April  3d,  1911,  the  Supreme  Court  of  the  Unit- 
•ed  States  handed  down  a  decision  in  case  No.  72,  Oc- 

172 


UNPATENTED   ARTICLES 

tober  Term,  1910,  Dr.  Miles  Medical  Co.,  complainant^ 
vs,  John  D.  Park  &  Son  Co. 

This  decision  dealt  largely  with  the  question  of  the 
right  of  the  manufacturers  of  an  unpatented  article 
or  a  proprietary  preparation  manufactured  under  a 
secret  process,  to  enforce  the  maintenance  of  resale 

prices. 

In  this  connection,  the  decision  is  rendered  upon 
the  proposition  that  in  the  ordinary  lines  of  trade  and 
commerce,  if  a  manufacturer  of  an  unpatented  article 
were  permitted  to  legally  enter  into  and  enforce  a 
price  maintenance  plan  in  connection  with  the  resale 
of  his  goods,  he  would  be  granted  a  monopoly  even 
greater  than  that  given  by  the  United  States  Govern- 
ment through  its  patent  laws  to  manufacturers  of  pat- 
ented articles. 

The  Supreme  Court  stated  that  it  would  be  grant- 
ing to  such  manufacturers  the  right  for  an  unlimited 
time,  to  exercise  a  monopoly  in  connection  with  the 
sale  of  their  product  to  the  public. 

The  decision  further  held  that  the  manufacturer 
could  sell  or  not  as  he  chose,  but  that  after  the  manu- 
facturer exercised  the  right  to  vend,  it  did  not  follow 
that  in  case  of  sales  actually  made,  he  might  impose 
upon  purchasers  every  sort  of  restriction.  The  Court 
held,  in  brief,  that  after  title  had  passed,  all  right  and 
interest  had  passed. 

"Thus,"  says  the  Supreme  Court,  "a  general  re- 
straint upon  alienation  is  ordinarily  invalid.  The  right 
of  alienation  is  one  of  the  essential  incidents  of  a  right 
of  general  property  in  movables,  and  restraints  upon 
alienation  have  been  generally  regarded  as  obnoxious 

173 


i 


1 


Ck>ntract8  in 
Bestraint  of 
Alienation  of 
Movables  Void 


PRICE    MAINTENANCE 

to  public  policy,  which  is  best  subserved  by  great  free- 
dom of  traffic  in  such  things  as  pass  from  hand  to 
hand.  General  restraint  in  the  alienation  of  articles, 
things,  chattels,  except  when  a  very  special  kind  of 

property  is  involved,  such  as  a  slave  or 
an  heirloom,  have  been  generally  held 
void.  *If  a  man,'  says  Lord  Coke,  in 
Coke  on  Littleton,  section  360,  *be  pos- 
sessed of  a  horse  or  any  other  chattel, 
real  or  personal,  and  give  his  whole  interest  or  prop- 
erty therein,  upon  condition  that  the  donee  or  vendee 
shall  not  alien  the  same,  the  same  is  void,  because  his 
whole  interest  and  property  is  out  of  him,  so  as  he 
hath  no  possibility  of  reverter ;  and  it  is  against  trade 
and  traffic  and  bargaining  and  contracting  between 
man  and  man.' "  Park  v.  Hartman,  supra.  See  also 
Gray  on  Restraints  on  Alienation,  sec.  27,  28. 

Quoting  verbatim  from  the  decision  of  the  Su- 
preme Court  as  follows,  we  read : 

"The  basis  of  the  argument  appears  to  be  that  as 
the  manufacturer  may  make  and  sell,  or  not,  as  he 

chooses,  he  may  affix  conditions  as  to 
the  use  of  the  article,  or  as  to  the  prices 
at  which  purchasers  may  dispose  of  it. 
But  because  a  manufacturer  is  not 
bound  to  make  or  sell,  it  does  not  follow 
that  in  case  of  sales  actually  made  he  may  impose  upon 
customers  every  sort  of  restriction. 

"Nor  can  a  manufacturer  by  rule  or  notice,  in  the 
absence  of  contract  or  statutory  right,  even  though  the 
restriction  is  known  to  the  purchasers,  fix  prices  for 
future  sales.    It  has  been  held  by  this  court  that  no 

174 


Iiimitatlon  of 
Bigbts 


UNPATENTED   ARTICLES 

such  privilege  exists  under  the  copyright  statutes,  al- 
though the  owner  has  the  sole  right  to  vend  copies  of 
the  copyrighted  production.    210  U.  S.  339. 

"It  will  hardly  be  contended  with  respect  to  such 
a  matter,  that  the  manufacturer  of  an  article  of  com- 
merce, not  protected  by  any  statutory  right,  is  in  any 
better  position.  L.  Ch.  354,  2  Ch.  306,  179  Mass.  388. 
Whatever  right  the  manufacturer  may  have  to  project 
his  control  beyond  his  own  sales  must  depend  not  upon 
an  inherent  power  incident  to  production  and  original 
ownership,  but  upon  agreement. 

"With  respect  to  contracts  in  restraint  of 
trade  the  earlier  doctrine  of  the  common  law  has  been 
substantially  modified  in  adaptation  to  modem  condi- 
tions. But  the  public  interest  is  still  the  first  consider- 
ation. To  sustain  the  restraint,  it  must  be  found  to 
be  reasonable,  both  with  respect  to  the  public  and  to 
the  parties,  and  that  it  is  limited  to  what  is  fairly 
necessary  in  the  circumstances  of  the  particular  case, 
for  the  protection  of  the  covenants.  Otherwise  re- 
straints of  trade  are  void  as  against  public  policy. 

"The  agreements  here  are  designed  to  maintain 
prices,  after  the  complainant  has  parted  with  title  to 
the  articles,  and  to  prevent  competition  among  those 
who  trade  in  them.  The  bill  asserts  the  importance  of 
a  standard  retail  price,  and  alleges  generally  that  con- 
fusion and  damage  have  resulted  from  sales  at  less 
than  prices  fixed.  But  the  advantage  of  established 
retail  prices  primarily  concerns  the  dealers.  The  en- 
larged profits  which  would  result  from  adherence  to 
the  established  rates  would  go  to  them  and  not  to  the 
complainant.    It  is  through  the  inability  of  the  favored 

175 


PRICE    MAINTENANCE 

dealers  to  realize  these  profits  on  account  of  the  de- 
scribed competition,  that  the  complainant  works  out 
its  alleged  injury. 

"If  there  is  an  advantage  to  a  manufacturer  in 
the  maintenance  of  fixed  retail  prices,  the  question 
remains  whether  it  is  one  which  he  is  entitled  to  secure 
by  agreements  restricting  the  freedom  of  trade  on  the 
part  of  the  dealers  who  own  what  they  sell.  As  to  this 
the  complainant  can  fare  no  better  with  its  plan  of 
identical  contracts  than  could  the  dealers  themselves^ 
if  they  formed  a  combination  and  endeavored  to  estab- 
lish the  same  restrictions,  and  thus  to  achieve  the  same 
result  by  agreement  with  each  other.  If  the  immediate 
advantage  they  would  thus  obtain  would  be  sufficient 
to  sustain  such  a  direct  agreement,  the  asserted  ul- 
terior benefit  to  the  complainant  cannot  be  regarded 
as  sufficient  to  support  its  system. 

"But  agreements  or  combinations  between  dealers 
having  for  their  sole  purpose  the  destruction  of  com- 
petition and  the  fixing  of  prices  are  injurious  to  the 
public  interest  and  void. 

"The  complainant's  plan  falls  within  the  principle 
which  condemns  contracts  of  this  class.  It  in  effect 
creates  a  combination  for  the  prohibited  purpose. 

"Where  commodities  have  passed  into  the  chan- 
nels of  trade,  and  are  owned  by  dealers  the  validity  of 

agreements  to  prevent  competition  and 
Witii  tiio  Act*^f  ^^  maintain  prices  is  not  to  be  determin- 
Seuing  ed  by  the  circumstances,  whether  they 

Unpatented  were  produced  by  several  manufactur- 

^^^  ers  or  one,  or  whether  they  were  pre- 

viously owned  by  one  or  by  many.    The  complainant 

176 


UNPATENTED   ARTICLES 


having  sold  its  product  at  prices  satisfactory  to  itself, 
the  public  is  entitled  to  whatever  advantage  may  be 
derived  from  competition  in  the  subsequent  traffic. 

"The  questions  involved  were  carefully  considered 
and  the  decision  reviewed  by  Judge  Lurton  in  delivering 
the  opinion  of  the  Circuit  Court  of  Appeals  in  Park 
vs.  Hartman,  supra,  and  in  following  that  case  it  was 
concluded  below  that  the  restrictions  sought  to  be  en- 
forced by  the  bill  were  invalid,  both  at  common  law 
and  under  the  act  of  Congress  of  July  2,  1890  (the 
Sherman  Act). 

"So  far  as  this  decision  is  an  interpretation  of 
the  Sherman  law,  it  touches  only  limited  price  schemes 
which  concern  articles  shipped  from  State  to  State» 
That  is  to  say,  if  there  was  nothing  more  to  it,  a  man- 
ufacturer doing  business  wholly  within  the  State  of 
Illinois  could  make  limited  price  contracts  with  the 
wholesalers  and  retailers  of  that  State  without  bein^r 
affected  by  this  decision  at  all.  The  opinion,  however, 
closes  with  the  statement  that  the  price  restrictions 
are  also  invalid  at  common  law.  That  makes  it  affect 
the  business  done  within  the  States  as  well." 

In  other  words,  the  decision  of  the  Supreme  Court 
holds  that  after  a  manufacturer  sells  the  goods,  it  is 
desirable  that  there  be  the  freest  play  of  competition 
so  that  the  public  may  enjoy  such  benefits  as  may 
result  from  such  free  play  of  competition. 

Quoting  verbatim  from  this  important  decision: 

"It  (this  manufacturers*  resale  plan)  in  effect, 
creates  a  combination  for  the  prohibited  purposes.  Na 
distinction  can  properly  be  made  by  reason  of  the 
particular  character  of  the  commodity  in  question.    It 

177 


1  ll 


PRICE    MAINTENANCE 

is  not  entitled  to  special  privilege  or  immunity.  It  is 
an  article  of  commerce,  and  the  rules  concerning  the 
freedom  of  trade  must  be  held  to  apply  to  it.  Nor  does 
the  fact  that  the  margin  of  freedom  is  reduced  by  the 
control  of  production  make  the  protection  of  what  re- 
mains, in  such  a  case,  a  negligible  matter.  And  where 
commodities  have  passed  into  the  channels  of  trade 
and  are  owned  by  dealers,  the  validity  of  agreements 
to  prevent  competition  and  to  maintain  prices  is  not 
to  be  determined  by  the  circumstances  whether  they 
were  produced  by  several  manufacturers  or  by  one,  or 
whether  they  were  previously  owned  by  one  or  by 
many.  The  complainant  having  sold  its  product  at 
prices  satisfactory  to  itself,  the  public  is  entitled  to 
whatever  advantage  may  be  derived  from  competition 
in  the  subsequent  traffic." 

As  far  as  a  resale  price  on  unpatented  goods 
dictated  by  the  manufacturers  is  concerned,  many 
manufacturers  consider  that  the  price  cutters  are  the 
ones  who  restrain  their  trade  in  a  manner  which  is 
most  unfair. 

One  says:  "It  is  that  kind  of  restraint  that  we 
have  contended  against  for  16  years." 

The  exploitation  of  a  manufacturer's  goods  at  less 
than  a  living  profit  for  the  sake  of  selling  other  goods 
works  an  unjust  restraint  of  trade  that  we  think  will 
not  be  sustained  on  the  score  of  public  policy  when 
that  is  made  a  definite  issue  before  the  Supreme  Court. 

But,  under  existing  conditions,  a  manufacturer  of 
unpatented  goods  who  is  engaged  in  interstate  com- 
merce and  desires  to  control  the  resale  price  of  such 
goods  must  proceed  with  circumspection.     By  estab- 

178 


UNPATENTED   ARTICLES 

lishing  the  relation  of  principal  and  agent  between 
himself  and  those  who  distribute  his  product,  he  can, 
within  proper  limitations,  exercise  the  desired  control 
over  the  selling  price  of  his  goods.  Commercial  law- 
yers have  displayed  much  ingenuity  in  devising  con- 
signment contracts  whereby  the  relation  of  principal 
and  agent  or  bailor  and  bailee  is  preserved  without 
largely  departing  from  the  usual  procedure  of  outright 
sale.  It  seems  quite  within  the  range  of  possi- 
bilities that  a  feasible  selling  system  of  this  sort  might 
be  devised.  But  if  not,  the  manufacturer  may  still 
have  his  counsel  consider  a  system  whereby,  without 
any  liability  to  observe  the  manufacturer's  announced 
resale  prices,  the  merchant  who  does  do  so  shall  be 
rewarded  by  a  gift  or  allowance  at  stated  periods, 
which  gift  or  allowance  shall  be  withheld  from  those 
who  do  not  observe  the  manufacturer's  resale  prices. 
Or  the  manufacturer  may  adopt  the  somewhat  innocu- 
ous plan  of  giving  an  express  warranty  on  each  article 
of  his  manufacture — ^the  same  to  be  conditioned  upon 
the  purchase  of  the  article  at  the  authorized  price  and 
to  be  non-effective  if  purchased  from  other  than  a 
regular  dealer  at  other  than  the  authorized  price. 

But  what  is  really  needed  is  a  Federal  law  which 
will  give  the  manufacturer  of  unpatented  articles  the 
right  to  control  their  resale  price  so  long  as  he  does 
not  act  in  concert  with  other  manufacturers.  Cer- 
tainly a  law  of  this  sort  could  be  drawn  in  such  a 
way  that  it  would  not  serve  as  a  cloak  for  monopoly. 
At  the  present  time  it  is  difficult,  if  not  impossible,  to 
distinguish  between  the  individual  who  seeks  to  exer- 
cise a  perfectly  proper  control  over  his  own  business 

179 


PRICE    MAINTENANCE 

and  those  who  conspire  towards  monopoly  and  against 
the  public  welfare. 

The  decision  of  the  Supreme  Court  in  this  Dr. 
Miles  Medical  Company  case  does  not  affect  the  rights 
of  a  patentee  to  control  the  resale  price  of  his  patented 
article  and  will  have  no  effect  on  his  policies. 


180 


CHAPTER  XX. 


METHODS  OF  RESALE. 

A  prominent  manufacturer  of  patented  goods, 
marketing  his  product  under  resale  conditions  with 
rebate  withheld  conditioned  on  price  maintenance,  re- 
quires all  his  distributors  that  they  must  not  sell  or 
offer  for  sale,  either  directly  or  indirectly,  at  less  than 
stipulated  licensed  prices;  must  not  give  goods  away 
as  premiums,  nor  shall  any  other  merchandise,  trading 
stamps,  negotiable  paper  or  any  other  inducements  be 
offered  as  an  incentive  to  promote  their  sale ;  must  pay 
no  commissions  on  sale  of  goods  in  any  form,  except 
in  lieu  of  a  regular  salary  to  salesmen  whose  services 
are  employed  regularly  and  exclusively;  must  not  sell 
shop-worn,  damaged  or  second-hand  goods,  except  on 
special  license  to  be  granted  on  application;  dealers, 
parties  to  the  contract,  may  borrow  goods,  but  no  sales 
may  be  made  by  one  contract  dealer  to  another  at  less 
than  the  resale  prices. 

The  manufacturers  of  patented  articles  may  affix 
a  license  of  sale,  similar  to  the  one  used  by  the  Gillette 
Safety  Razor  Company,  which  is  as  follows : 

Notice. — This  razor  is  only  licensed  by  uis  for 
sale  and  use  when  sold  to  the  public  at  a  price  not  less 
than  Five  Dollars.  No  license  is  granted  to  sell  it  at 
a  lower  price  than  Five  Dollars  or  to  use  it  if  sold  at 
less  than  such  price.    Neither  rmist  it  be  included  in  a 

181 


'   u 


PRICE    MAINTENANCE 

combine  sale  with  other  goods,  nor  used  as  a  premium 
upon  the  sale  of  other  merchandise.  Any  transfer  or 
sale  in  violation  of  these  conditions,  or  its  u^e  when  so 
sold,  will  constitute  an  infringement  of  our  United 
States  letters,  patent  Nos.  775,134,  775,135,  under 
which  this  razor  is  made,  and  all  parties  selling  or 
using  it  contrary  to  the  terms  of  this  license,  will  be- 
come infringers  of  said  patents,  and  will  render  them^ 
selves  liable  to  an  injunction  and  damages.  The  lim- 
ited license  to  sell  above  set  forth  is  good  only  so  long 
as  this  Uibel  remains  upon  the  package,  and  erasures 
or  removal  of  this  label  will  be  construed  as  a  cancella- 
tion of  the  license.  A  purchase  is  an  acceptance  of 
these  conditions.  All  rights  revert  to  the  undersigned 
in  the  event  of  any  violation  thereof. 

GILLETTE  SAFETY  RAZOR  CO., 

Owners  of  said  patent. 

Methods  of  Controlling  Resale  Prices  by  Manufacturers 

of  Unpatented  Articles. 

Prior  to  the  decision  of  the  Supreme  Court  of 
April  3rd,  1911,  there  were  many  very  satisfactory 
plans  for  controlling  the  resale  price  of  unpatented 
articles. 

There  have  been  many  forms  of  agreements  drawn 
in  the  past,  some  withholding  a  rebate  which  was  pay- 
able every  three  or  six  months  on  condition  that  the 
merchant  had  not  cut  the  price,  and  others  involving 
other  penalties  for  violation. 

One  particular  manufacturer  advised  the  trade 
that  he  desired  his  goods  sold  at  certain  fixed  prices 

182 


METHODS    OF    RESALE 

with  the  intent  of  securing  for  the  jobber  a  fair  profit 
on  his  goods.  He  further  stated  that  while  he  had  no 
rebate  withheld,  the  failure  of  the  jobber  to  strictly 
maintain  his  prices  to  the  retail  trade  would  be  suffi- 
cient evidence  to  him  that  the  profit  is  more  than  the 
jobber  deserves  and  that  the  quotations  shall  be 
promptly  withdrawn.  In  view  of  the  present  attitude 
of  the  Courts,  however,  they  cannot  be  recommended 
in  practical  service  unless  great  caution  is  shown  in 
ENFORCING  the  maintenance  of  prices. 

It  will  be  recalled  that  Justice  Holmes  in  his  dis- 
senting opinion  states,  that  "By  a  slight  change  in  the 
form  of  the  contract  of  the  Dr.  Miles  Medical  Company 
the  plaintiff  can  accomplish  the  result  (the  fixing  of 
resale  prices  of  unpatented  articles)  in  a  way  that 
would  be  beyond  successful  attack.  If  it  should  make 
the  retail  dealers  also  agents  in  law  as  well  as  in  name 
and  retain  the  title  until  the  goods  left  their  hands,  I 
cannot  conceive  that  even  the  present  enthusiasm  for 
regulating  the  prices  to  be  charged  by  other  people 
would  deny"*  that  the  owner  was  acting  within  his 
rights." 

Also  considering  the  question  of  resale  plan,  if 
the  manufacturer  has  direct  relations  with  the  whole- 
saler, it  is  believed  that  educational  work  along  the 
line  of  securing  a  fair  price  has  progressed  sufficiently 
to  dispense  very  largely  with  the  need  of  written  agree- 
ments. 

A  manufacturer's  account  is  valuable  to  a  whole- 
sale or  retail  dealer.  The  manufacturer  could  express 
his  preference  that  a  certain  price  should  be  secured. 

This  he  could  do  even  though  he  had  no  legal  con- 

183 


I  ^li 


Ill 


PRICE    MAINTENANCE 

trol  over  the  merchant's  resale  policy  after  he  sold  the 
^oods,  or  as  the  Courts  state,  after  the  manufacturer 
has  exercised  the  right  to  vend. 

Now,  the  Supreme  Court  still  holds  that  it  is  a 
seller's  privilege  to  exercise  or  refrain  from  exercising 
the  right  to  sell. 

Therefore,  why  can  the  owner  not  decline  to  exer- 
cise the  right  to  vend  in  case  any  purchaser  may  be 
distasteful  to  him  for  any  reason  whatsoever,  or,  for 
no  reason  at  all. 

We  cannot  see  why  it  would  not  be  practicable 
for  a  manufacturer  to  express  his  preference  to  the 
trade  as  to  the  prices  at  which  they  should  sell  his 
goods. 

A  large  number  of  manufacturers  have  selling 
plans  which  call  for  a  select  list  of  dealers,  only  one 
or  two  in  a  territory,  and  refuse  to  sell  to  all  others, 
stating  that  they  have  very  satisfactory  connections 
already  formed  and  do  not  see  their  way  clear  to  in- 
crease the  number  at  the  present  time. 

Acting  along  the  same  lines,  exercising  the  right 
to  sell  or  not  as  they  choose,  why  could  not  such  a 
manufacturer  handle  a  price  cutter  by  telling  him  that 
he  no  longer  saw  fit  to  use  him  as  an  agent  for  dis- 
tributing his  products? 

In  our  opinion,  this  could  be  done.  Further,  it 
has  been  done,  and  with  successful  results. 

Subterfuges  Resorted  to  by  Seller  to  Cut  Price  on 

Restricted  Goods. 

As  previously  stated,  the  supervision  of  the  manu- 
facturer over  the  resale  price  of  his  product,  has  been 

184 


METHODS   OF   RESALE 

rendered  necessary  largely  through  competition  either 
of  an  unintelligent  or  vindictive  character,  and  the 
same  reasons  cause  some  to  violate  the  resale  prices 
established  by  the  manufacturers. 

A  law  or  regulation  against  any  improper  act  can- 
not possibly  give  the  assurance  that  the  act  will  not  be 
committed,  else  the  millenium  would  be  with  us. 

There  are  just  as  many  different  ways  to  violate 
a  contract  or  to  cut  prices  as  there  are  dishonest  men 
to  conceive  them. 

We  do  not  think  it  is  incumbent  on  scoffers  to 
speak  about  a  restricted  price  system  as  placing  a 
premium  on  dishonesty,  for  is  not  a  restricted  price 
system  merely  making  the  few  dishonest  ones  stand 
out  more  clearly  in  the  light,  and  enabling  the  honest 
merchants,  who  are  in  the  vast  majority,  to  see  just 
what  men  are  casting  discredit  upon  their  calling? 

Of  course,  those  who  are  dishonest  should  be  prop- 
erly dealt  with  by  the  manufacturer  so  that  they  may 
know  that  their  actions  are  meeting  with  the  hearty 
disapproval  of  their  fellow  merchants  and  the  manu- 
facturers whos^  goods  they  distribute. 

One  desiring  to  employ  a  subterfuge  may  ship  a 
larger  quantity  of  the  goods  than  he  bills ;  he  may  give 
the  buyers  some  cash  out  of  his  pocket;  he  may  sell 
other  goods  at  cost  or  less  in  order  to  influence  the 
sale  of  the  goods  on  a  resale  basis ;  he  may  do  these,  or 
resort  to  other  crooked  practices  to  violate  his  contract 
with  the  manufacturer,  and  it  is  not  to  be  supposed 
for  a  moment  that  the  establishment  of  a  resale  price 
and  even  its  rigid  enforcement  by  the  manufacturer 
will  make  dishonest  men  honest.    In  fact,  the  possibili- 

185 


i 


I 


! 


PRICE    MAINTENANCE 

ties  for  employing  a  subterfuge  to  cut  prices  are  limit- 
ed only  by  the  shrewdness,  brain  power  and  crooked 
tendencies  of  those  employing  them. 

It  is  certain,  however,  that  if  the  manufacturer 
evidences  his  sincerity  and  his  determination  to  hon- 
estly and  rigidly  enforce  the  provisions  of  his  contract, 
he  will  have  little  trouble  with  those  who  by  one  subter- 
fuge or  another  attempt  to  break  down  his  prices. 

A  Query, 

A  manufacturer  of  a  patented  article  says : 

"If  I  establish  a  resale  price  on  my  goods,  will  not 
the  trade  handle  the  imitation  article  underselling  the 
genuine?" 

Answer :  The  trade  is  not  anxious  to  force  sales- 
men to  spend  time  uselessly  in  arguing  the  merits  of  an 
imitation  if  a  profit  can  be  made  on  the  genuine. 

Possibly  the  principal  reason  headway  has  been 
made  in  the  sale  of  the  imitation  is  because  of  the  un- 
profitableness of  the  genuine  article. 

With  an  assured  profit  of  a  proper  amount  (which 
is  perhaps  5%  net  on  sale  over  the  cost  of  conducting 
business),  the  trade  would  surely  be  glad  to  handle 
the  original  and  genuine  article,  to  the  exclusion  of 
spurious  imitations. 


186 


CHAPTER  XXL 

LOYALTY. 

From  time  to  time,  manufacturers  have  sought  to 
increase  the  loyalty  of  wholesale  and  retail  merchants 
to  their  line  of  goods  by  giving  a  rebate  of  2V^  or  5%, 
provided  the  merchants  would  maintain  strictly  the 
resale  price  established  and  confine  their  purchases  to 
their  line  exclusively. 

For  instance,  they  have  established  a  resale  price 
of  70%  discount,  and  have  allowed  a  profit  of  10  and 
5%  to  those  who  will  sign  a  statement  to 
the  effect  that  they  have  strictly  main- 
tained stipulated  prices  on  the  patented 
goods  covered  by  the  resale  arrange- 
ment. Then  they  have  had  a  separate 
rebate  of  from  2i^  to  5%,  and  gave  this  to  the  mer- 
chant only  on  condition  that  he  promoted  the  sale  of 
their  goods  exclusively. 

The  basis  of  such  an  offer  of  a  special  rebate  based 
on  exclusive  sale,  is  at  once  a  reasonable  one  and  also 
a  selfish  one.  The  manufacturer  feels  that  he  is  better 
represented  by  the  jobber  or  retailer  who  confines  his 
sale  to  goods  of  his  manufacture. 

On  the  other  hand,  can  it  not  be  thought  that  the 
manufacturer  uses  this  special  rebate  as  the  cheapest 
method  of  keeping  the  other  fellow  out  of  the  market. 
Does  it  not  infer  weakness  and  does  it  not  indicate  that 

187 


A  Preminm  on 
Loyalty 


PRICE    MAINTENANCE 

the  manufacturer  is  greatly  afraid  of  his  competitor 
when  he  must  offer  a  special  rebate  for  sole  considera- 
tion instead  of  allowing  the  merchant  to  continue  to 
give  him  the  opportunity  of  purchasing  most  largely 
from  him  merely  because  of  the  quality  of  his  goods 
and  the  manner  of  treating  the  trade,  his  progressive- 
ness,  his  prestige  and  his  other  points  of  superiority? 
Some  combinations  of  manufacturers  who  have 
attempted  to  exercise  the  control  over  the  market,  have 
gotten  into  trouble  with  the  Government  very  largely 
on  account  of  this  loyalty  proposition.  They  have  used 
the  loyalty  clause  to  force  unwilling  xnanufacturers  to 
come  into  their  combination.  They  have  said  to  the 
jobbers  or  retailers:  "You  may  have  our  goods  at 
rock  bottom  prices,  provided  you  do  not  buy  from  the 
people  outside  of  our  combination.  If  you  do  buy 
from  these  outside  people,  we  will  either  not  sell  you 
at  all  or  we  will  charge  you  5  or  10%  more  for  the 
goods.'' 

The  Government  will  not  stand  for  any  such 
proposition.  It  is  un-American  and  unfair.  It  savors 
very  largely  of  the  nature  of  a  conspiracy  or  boycott, 
and,  moreover,  being  based  on  utter  selfishness,  it  has 
no  place  in  the  modern  business  world. 

Viewing  the  matter  from  another  standpoint,  the 
manufacturer  who  establishes  a  reside  price  wants  to 
be  assured  that  the  merchants  will  not  abandon  his 
line  because  a  competitor — possibly  a  manufacturer  of 
an  inferior  piece  of  goods — ogives  a  little  better  price 
and  the  merchant  uses  the  good  conditions  created  by 
the  resale  plan  to  make  a  fair  market  price  for  the 

188 


LOYALTY 

inferior  goods  and  to  make  for  himself  a  little  better 
profit  than  he  could  on  the  genuine  goods. 

The  attitude  of  the  Government  or  the  opinion  of 
business  people  cannot  and  will  not  prevent  a  manu- 
facturer from  showing  appreciation  of  absolute  loyalty 
of  a  merchant  to  his  line  of  goods.  Nothing  said  in  thia 
connection  hereinbefore  is  retracted,  but  if  a  manu- 
facturer sees  fit  to  show  appreciation  of  loyalty  he 
should  certainly  do  it,  but  he  cannot  and  must  not  at- 
tempt to  employ  any  illegal  measures  to  hold  the  trade 
of  any  one  on  his  goods. 

Another  Query  Answered. 

One  manufacturer  says:  "Will  competitive  man- 
ufacturers benefit  to  my  detriment  if  I  put  a  resale 
price  into  effect  and  they  do  not?" 

Answer:  If  a  manufacturer  puts  a  resale  price 
into  effect  on  his  goods,  it  demonstrates  to  the  public 
that  their  value  is  fixed,  and  that  because  of  the  stable 
price  they  are  entitled  to  respect.  A  manufacturer 
with  a  fixed  price  need  pay  a  decreasing  amount  of  at- 
tention to  the  action  of  competitors,  because  of  the 
satisfactory  co-operation  on  the  part  of  the  trade. 

His  customers,  who  are  obviously  in  business  for 
the  purpose  of  making  money,  are  securing  a  satis- 
factory profit  from  the  sale  of  the  goods. 

The  thousands  of  salesmen  employed  by  his  cus- 
tomers throughout  the  country  are  in  many  cases  paid 
in  proportion  to  the  profits  derived  from  the  business 
secured,  and  they  are,  therefore,  enthusiastic  regard- 

189 


•5 


I- 

f 


PRICE    MAINTENANCE 

ing  those  goods  which  pay  a  good  profit,  and  quite  in- 
different to  the  sale  of  unprofitable  goods. 

The  merchants  and  their  salesmen  will  have  no 
incentive  to  push  competitive  or  imitation  goods,  which 
require  extra  time  to  induce  a  customer  to  purchase, 
and  in  the  sale  of  which  no  profit  is  guaranteed. 

Thus,  thousands  of  wholesale  and  retail  merchants 
and  the  salesmen  of  each  will  enthusiastically  extol  the 
merits  of  a  quality  product,  sold  under  a  profit  guar- 
antee contract.  What  better  advertisement  could  be 
had  at  any  price? 

Reciprocity  or  Co-operation  Between  Merchants  and 

Manufacturers,    , 

Reciprocity  in  the  sense  of  the  word  as  here  used 
means,  "done  by  each  for  the  other." 

It  means  that  where  manufacturers  confine  the 
distribution  of  their  goods  through  certain  classes  of 
merchants  and  protect  them  in  the  enjoyment  of  a  fair 
margin  of  profit,  those  merchants  should  give  such 
manufacturers  in  return  a  reasonable  degree  of  loyalty 
through  actual  purchase  of  goods  from  them  and 
should  make  strong  efforts  through  their  sales  depart- 
ment in  favor  of  the  goods  of  such  manufacturers. 

The  true  meaning  of  reciprocity  is  that — ^you  will 
help  me  to  do  what  I  want  in  the  interest  of  my 
affairs  and  I  will  help  you  in  the  interest  of  your 
affairs. 

Always  where  merchants  know  that  certain 
manufacturers  are  pursuing  a  policy  friendly  to  them, 
it  would  be  just  as  well  if  they  gave  manufacturers 

190 


LOYALTY 

pursuing  an  unfriendly  policy  no  consideration  at  all, 
regardless  of  their  prices  or  anything  else,  it  being 
enough  for  the  merchants  to  know  that  it  is  not  to 
their  interest  to  build  up  this  kind  of  manufacturers, 
by  taking  the  surplus  that  they  may  desire  to  dump 
on  the  merchants  after  they  have  sold  the  major  por- 
tion in  a  way  unfavorable  to  their  interests. 

The  distributors  should,  for  their  own  self-pre- 
servation, not  give  business  to  the  manufacturers  who 
refuse  to  recognize  them  as  entitled  to  protection  in 
connection  with  the  sale  of  their  goods,  this  protection 
being  both  in  the  nature  of  not  soliciting  distributors' 
customers  direct  and  by  guaranteeing  to  the  distributor 
a  fair  profit. 

Of  course,  it  is  advisable  that  the  unfair  manu- 
facturer should  be  convinced  of  the  error  of  his  way, 
and  this  can  best  be  done  by  individual  merchants  tak- 
ing action  according  to  a  fixed  policy  and  by  not  being 
penny-wise  and  pound-foolish  by  patronizing  manu- 
facturers whose  goods  cannot  be  profitably  distributed. 

Another  Query. 

A  manufacturer  says:  "Yes,  I  would  be  willing 
to  enter  in  a  resale  price  contract,  but  would  it  not  en- 
tail an  advertising  expense  of  $40,000  or  $50,000  per 
annum?  All  the  manufacturers  I  ever  heard  of  who 
fixed  a  resale  price  had  advertised  heavily,  and  I  think 
it  absolutely  essential." 

Answer :  If  your  goods  are  sold  on  a  profit  guar- 
antee contract,  you  will  get  all  your  advertising  free. 
Thousands  of  wholesale  and  retail  merchants  and  their 

191 


PRICE    MAINTENANCE 


Hi: 


salesmen,  paid  on  a  profit-sharing  basis  directly  or 
indirectly,  will  push  your  goods  and  impress  upon  the 
minds  of  their  customers  and  the  ultimate  consumer 
the  fact  that  your  goods  are  of  a  standard  quality  and 
at  a  standard  price.  The  goods  are  worth  it,  says  the 
salesman,  for  they  sell  at  this  price  the  country  over, 
and  the  most  discriminating  buyers  demand  them  on 
account  of  the  fact  that  their  quality  is  always  uniform. 
The  factory  gets  a  fair  price  for  the  goods,  and  is 
always  anxious  to  improve  the  quality. 


I 


;ii 


i 


192 


CHAPTER  XXIL 

BENEFITS  OF  RESALE  FLAN. 

Price  competition  ceases  and  trade  is  permitted  to 
flow  into  its  natural  channels.  Those  who  are  pre- 
ferred by  the  buyer  secure  the  business  without  conces- 
sions of  any  kind. 

Mr.  R.  E.  Shanahan,  of  the  Bissell  Carpet  Sweeper 
Company,  Grand  Rapids,  Mich.,  said  recently  in  ad- 
dressing the  convention  of  the  American  Hardware 
Manufacturers*  Association : 

"From  my  point  of  view,  the  policy  of  price  main- 
tenance or  restricted  prices,  is  so  broad  in  scope,  so 
far  reaching  in  beneficent  results,  as  to  be  worthy  of 
the  thoughtful  consideration  and  earnest  support  of 
every  manufacturer,  jobber  and  retailer  in  this  coun- 
try. From  an  ethical  standpoint,  price  maintenance 
typifies  the  best  moral  elements  in  the  conduct  of 
business;  it  is  fundamentally  sound  in  principle  and 
pre-eminently  just  and  beneficent  in  practice,  fostering 
and  stimulating  as  it  does  the  best  ideals  in  commercial 
life;  promoting  character  in  business,  and  securing  to 
its  devotees  the  confidence  of  the  public,  which  is  in 
itself  a  valuable  commercial  asset. 

"There  are  certain  inevitable  laws  of  trade  that 
affect  in  common  the  manufacturer,  the  jobber  and  the 
retailer,  and  price  maintenance  recognizes  the  basic 
principle  of  commercial  justice  and  equity,  namely, 

193 


PRICE    MAINTENANCE 

that  the  manufacturer,  jobber  and  retailer,  in  the  pro- 
cess of  distribution,  are  entitled  to  a  fair  living  profit 
in  the  sale  of  any  commodity.  Experience  has  taught, 
and  I  believe  you  will  all  bear  me  out  in  this  statement, 
that  the  maintenance  of  prices  will  more  nearly  insure 
the  contributing  to  its  sale.  Not  only  will  the  main- 
tenance of  prices  insure  the  high  quality  of  an  article, 
but  also  its  very  permanence  on  the  market  as  well." 
Fair  prices  keep  up  the  standard  and  reputation 
of  an  article.  The  public  knows  that  it  costs  money  to 
make  a  good  article,  and  are,  therefore,  willing  to  pay 
the  price. 

A  Uniform  Price  Means  Uniform  Quality, 

When  prices  are  continually  changing  it  is  a  posi- 
tive sign  that  if  the  articles  had  been  properly  priced 
in  the  first  place  there  would  have  been  no  necessity 
of  reducing  the  selling  prices. 

The  reduction  of  a  price  usually  necessitates  re- 
trenchment in  the  cost  of  manufacturing.  This  means 
a  cheapening  of  quality,  a  condition  that  would  never 
happen  with  an  article  properly  protected  by  a  strong 

resale  price. 

Merchants  in  general  fully  approve  of  established 
prices  and  show  their  appreciation  of  a  policy  which 
protects  them  in  the  enjoyment  of  profit  both  by  being 
required  themselves  to  adhere  to  fixed  prices  under  all 
circumstances,  and  also  by  having  a  guarantee  that  all 
others  must  do  likewise. 

It  is  easier  and  less  expensive  to  conduct  business 
with  limited  price  schedules.    Goods  may  be  sold  more 

194 

f 


BENEFITS    OF   RESALE    PLAN 

quickly,  as  the  usual  bantering  in  price  and  delay  in 
placing  orders  by  the  customer  are  dispensed  with. 

All  merchants  are  on  an  equal  basis  in  selling,  and 
if  by  some  special  deal  some  one  merchant  obtains  an 
extra  concession,  it  is  not  reflected  in  the  selling  price, 
as  is  usually  the  case  on  an  open  market,  to  the  conse- 
quent demoralization  of  prices. 

It  is  beneficial  to  the  customer.  He  has  it  fixed  in 
his  mind  that  there  is  only  one  price,  and  that  he  has 
bought  his  goods  right. 

The  trade  has  several  sources  of  supply  open, 
equally  advantageous. 

It  gives  salesmen  time  to  exploit  new  goods  and 
talk  quality  instead  of  arguing  price,  saving  time  on 
the  road  and  annoyance  in  the  house. 

Facilitates  Conduct  of  Business, 

It  compels  those  who  have  no  desire  to  make 
money  to  discontinue  their  policy  of  demoralization, 
to  the  end  that  those  who  want  to  attain  success  may 
do  so  with  some  degree  of  pleasure  and  comfort,  to  an 
extent  that  will  at  least  justify  the  energy  and  capital 
required. 

The  detail  work  involved  in  enforcing  resale 
prices  may  be  considerable  at  first,  but  when  it  is 
demonstrated  that  the  manufacturer  is  sincere 
and  earnest  in  the  enforcement  of  the  plan,  the  detail 
work  will  gradually  diminish,  and  by  its  smooth  opera- 
tion the  cares  of  business  will  be  lessened,  and  the  pres- 
ence of  such  a  plan  known  only  by  its  wonderful 

195 


i 


PRICE    MAINTENANCE 

results  in  securing  and  holding  the  trade  of  the  best 
class  of  distributors  and  consumers. 

Opinions  of  Some  Manufacturers, 

A  manufacturer  whose  product  is  of  the  highest 
quality,  in  speaking  of  the  efficacy  of  the  resale  system 
a  short  time  ago,  said: 

"Previous  to  seven  or  eight  years  ago,  the  com- 
modity which  I  manufacture  had  become  nothing  more 
or  less  than  a  football.  It  was  kicked  around,  and  it 
ought  really  to  have  been  throwp  out  of  everybody's 
shop. 

"There  was  no  profit  to  anybody  in  the  line.  Man- 
ufacturer, jobber  and  retailer  were  all  disgusted  with 
conditions. 

"We  worked  along  endeavoring  to  find  a  solution. 
We  did  everything,  I  believe,  that  manufacturers  or 
merchants  should  have  done,  yet  we  failed  to  make 
our  goods  profitable  either  to  ourselves  or  to  jobbers 
or  retailers. 

"After  many  conferences,  we  decided  to  give  the 
plan  of  dictating  selling  prices  to  wholesalers  and 
retailers  a  fair  trial.  This  policy  has  now  been  in 
force  for  seven  years. 

"The  plan,  as  you  know,  is  the  regular  resale  plan 
which  I  have  since  ascertained  is  followed  so  success- 
fully by  a  large  number  of  manufacturers.  So  far  as 
the  maintenance  of  our  prices  is  concerned,  I  am  de- 
lighted to  say  to  you  that  in  the  canvass  of  over  two 
years  among  our  five  hundred  customers,  we  find  that 

196 


METHODS    OF    RESALE    PLAN 

it  meets  with  the  approval  of  all  of  them  except  one, 
and  that  one  man  wanted  his  profits  doubled. 

"I  believe  that  the  encouragement  and  thanks 
which  we  have  received  from  the  trade  and  the  better 
profits  which  we  have  made,  justifies  us  in  continuing 
to  market  our  product,  using  the  same  selling  policy 
which  has  created  these  good  conditions  to-day." 

Said  another  large  manufacturer: 

"A  bit  of  suggestive  history  was  woven  into  the 
.  .  .  industry  during  the  past  twelve  months — ^the 
kind  that  promises  to  repeat  itself  because  of  its  basic 
properties,  that  stand  for  protection  within  reasonable 
limits  to  the  local  jobber,  as  well  as  an  assured  profit 
on  sales  of  our  .  .  .  under  terms  and  conditions 
of  our  resale  and  premium  rebate  systems  that  were 
inaugurated  and  became  operative  recently. 

"This  departure  from  go-as-you-please  methods 
previously  in  vogue  marked  a  new  era  in  our  business 
and  has  received  the  stamp  of  approval  by  co-opera- 
tion on  the  part  of  the  trade  generally  throughout  the 
country.  This  system  of  marketing  our  product  will 
be  continued  on  the  wholesome  principle  underlying 
all  commercial  enterprises,  that  a  fair  yield  is  expected 
and  should  be  realized  from  the  merchandising  amount 
invested. 

"We  recognize  the  fact  that  in  conserving  the 
interests  of  our  customers  we  are  consulting  our  own. 
We  do  not  underestimate  the  value  of  our  principal 
asset — ^REPUTATION — ^the  best  in  business  that  began 
and  continues  with  the  company  since  its  inception 
seventy  odd  years  ago.  This  thought  leads  to  the  cen- 
tral idea  of  quality,  the  keystone  of  the  arch  of  our 

197 


PRICE    MAINTENANCE 


establishment,  resulting  from  the  application  of  in- 
ventive genius  and  the  highest  type  of  machinery  and 
mechanical  skill  obtainable. 

"We  believe,  for  reasons  stated  in  the  opening 
paragraph  of  this  communication,  we  are  brought  into 
more  profitable  touch  with  our  jobbing  friends,  whose 
loyalty  to  the  line  is  appreciated  and  whose  expressed 
views  will  always  be  respected  in  maintaining  alliance 
to  our  mutual  advantage." 


f 


( i 


198 


APPENDIX. 


Text  of  Sherman 
Anti-Trust  Law. 


THE  LAW  AT  HOME  AND  ABROAD. 

Many  business  men  have  never  taken  the  trouble 
to  read  the  text  of  the  Sherman  Anti-Trust  Law. 

Four  important  sections  of  it  read  as  follows : 

"Sec.  1.  Every  contract,  combination  in  form  of 
trust  or  otherwise,  or  conspiracy,  in  restraint  of  trade 
of  commerce  among  the  several  States, 
or  with  foreign  nations,  is  hereby  de- 
clared to  be  illegal.  Every  person  who 
shall  make  any  such  contract  or  engage 
in  any  such  combination  or  conspiracy, 
shall  be  deemed  guilty  of  a  misdemeanor,  and,  on  con- 
viction thereof,  shall  be  punished  by  a  fine  not  exceed- 
ing five  thousand  dollars,  or  by  imprisonment  not  ex- 
ceeding one  year,  or  by  both  said  punishments,  in  the 
discretion  of  the  court. 

"Sec.  2.  Every  pei:son  who  shall  monopolize,  or 
attempt  to  monopolize,  or  combine  or  conspire  with 
any  other  person  or  persons  to  monopolize  any  part  of 
the  trade  or  commerce  among  the  several  States,  or 
with  foreign  nations,  shall  be  deemed  guilty  of  a  mis- 
demeanor, and  on  conviction  thereof,  shall  be  punished 
by  fine  not  exceeding  five  thousand  dollars,  or  by  im- 
prisonment not  exceeding  one  year,  or  by  both  said 
punishments,  in  the  discretion  of  the  court. 

199 


PRICE    MAINTENANCE 


!  I  i 


•i 


«< 


'Sec.  3.  Every  contract,  combination  in  form  of 
trust  or  otherwise,  or  conspiracy,  in  restraint  of  trade 
or  commerce,  in  any  territory  of  the  United  States  or 
of  the  District  of  Columbia,  or  in  restraint  of  com- 
merce between  any  such  Territory  and  another  or  be- 
tween any  such  Territory  or  Territories  and  any 
State  or  States  or  the  District  of  Columbia,  or  with 
forei^  nations,  or  between  the  District  of  Columbia 
and  any  State  or  States  or  foreign  nations,  is  hereby 
declared  illegal.  Every  person  who  shall  make  any 
such  contract  or  engage  in  any  such  combination  or 
conspiracy,  shall  be  deemed  guilty  of  a  misdemeanor, 
and  on  conviction  thereof,  shall  be  punished  by  a  fine 
not  exceeding  five  thousand  dollars,  or  by  imprison- 
ment not  exceeding  one  year,  or  by  both  said  punish- 
ments, in  the  discretion  of  the  court. 

"Sec.  4.  Any  person  who  shall  be  injured  in  his 
business  or  property  by  any  other  person  or  corpora- 
tion by  reason  of  anything  forbidden  or  declared  to  be 
unlawful  by  this  act,  may  sue  therefor  in  any  credit 
court  of  the  United  States  in  the  district  in  which  the 
defendant  resides  or  is  found,  without  respect  to  the 
amount  in  controversy,  and  shall  recover  three  fold  the 
damages  by  him  sustained,  apd  the  costs  of  suit  includ- 
ing a  reasonable  attorney's  fee." 

The  Canadian  Law. 

In  Canada  the  legislation  is  quite  liberal  in  pro- 
tecting the  interest  of  the  public,  and,  at  the  same  time, 
operating  in  such  a  manner  that  the  interests  of  manu- 
facturers and  merchants  are  properly  conserved. 

The  situation  in  the  Dominion  of  Canada  with 

200 


Liberal 

Canadian 

Legislation. 


APPENDIX 

respect  to  the  regulation  of  contracts,  agreements,  or 
combinations  which  are  designed  to 
have  the  effect  of  fixing  the  price  of  any 
article  of  trade  or  commerce  is  much 
further  advanced  and  in  far  better  con- 
dition than  in  these  United  States. 

In  1910  there  was  passed  in  the  Senate  and  the 
House  of  Commons  of  the  Dominion  of  Canada  an  Act 
known  as  the  "Combines  Act." 

Briefly,  this  permits  price  agreements  so  long  as 
the  agreements  do  not  operate  to  the  detriment  of  the 
consumers  and  producers  within  the  Dominion. 

A  short  statement  of  the  character  and  scope  of 
the  act  is  given  as  f  oUows : 

The  Act  is  entitled,  "An  Act  to  provide  for  the  in- 
vestigation of  Combines,  Monopolies,  Trusts  and 
Mergers." 

A  "Combine"  is  defined  as  any  contract,  agree- 
ment, arrangement  or  combination  which  has,  or  is 
designed  to  have,  the  effect  of  increasing  or  fixing  the 
price  or  rental  of  any  article  of  trade  or  commerce 
or  the  cost  of  the  storage  or  transportation  thereof,  or 
of  restricting  the  competition  in  or  of  controlling  the 
production,  manufacture,  transportation,  storage,  sale 
or  supply  thereof  to  the  detriment  of  consumers  or  pro- 
ducers of  such  article  of  trade  or  commerce  and  in- 
cludes the  acquisition,  leasing  or  otherwise  taking  over, 
or  obtaining  by  any  person  to  the  end  aforesaid,  of 
any  control  over  or  interest  in  the  business,  or  any 
portion  of  the  business,  of  any  other  person,  and  also 
includes  what  is  known  as  trust,  monopoly  or  merger. 

201 


» 


) 


Maimer  of 

Piling 

Cknnplaiiit 


PRICE    MAINTENANCE 

Where  an  agreement  has  been  entered  into  among 
certain  manufacturers  or  dealers  of  a  commodity  and 

six  or  more  persons,  British  subjects 
resident  in  Canada  and  of  full  age,  are 
of  opinion  that  such  a  combine  exists, 
and  that  prices  have  been  enhanced  or 
competition  restricted  by  reason  of  such 
combine,  to  the  detriment  of  consumers  or  producers, 
such  persons  may  make  an  application  to  a  Judge  for 
an  order  directing  an  investigation  into  such  alleged 
combine. 

This  application  shall  be  accompanied  by  a  state- 
ment setting  forth : 

(a)  The  nature  of  the  alleged  combine  and  the 
persons  believed  to  be  concerned  therein. 

(b)  The  manner  in  which  the  alleged  combine 
affects  prices  or  restricts  competition,  and  the  extent 
to  which  the  alleged  combine  is  believed  to  operate 
to  the  detriment  of  consumers  or  producers. 

(c)  The  names  and  addresses  of  the  parties  mak- 
ing the  application  and  the  name  and  address  of  one 
of  their  number  or  some  other  person  whom  they 
authorize  to  act  as  their  representative  for  the  pur- 
poses of  this  Act  and  to  receive  communications  and 
conduct  negotiations  on  their  behalf. 

(d)  The  application  shall  be  accompanied  by  a 
statutory  declaration  from  each  applicant  declaring 
that  the  alleged  combine  operates  to  the  detriment  of 
the  declarent  as  a  consumer  or  producer  and  that  to 
the  best  of  his  knowledge  and  belief  the  combine  is 
injurious  to  trade  or  has  operated  to  the  detriment  of 

202 


APPENDIX 

consumers  or  producers  in  the  manner  and  to  the  ex- 
tent described,  and  that  it  is  in  the  pubUc  interest  that 
an  investigation  should  be  had  into  such  combine. 

The  Judge  then  arranges  for  a  preliminary  hear- 
ing of  the  applicant  for  complete  investigation,  and  if 
upon  said  hearing  the  Judge  is  satisfied  that  there  is 
reasonable  ground  for  believing  that  a  combine  exists 
which  is  injurious  to  trade  or  which  has  operated  to 
the  detriment  of  the  consumers  or  producers,  he  may 
then  direct  an  investigation  under  the  provisions  of 

the  Act. 

A  Board  is  then  appointed  consisting  of  one  who 
shall  be  recommended  by  the  person  upon  whose  appli- 
cation the  order  has  been  granted,  one  on  the  recom- 
mendation of  the  person  named  in  the  order  as  being 
concerned  in  the  alleged  combine,  and  the  third  on  the 
recommendation  of  the  two  members  as  chosen  who 
shall  be  a  Judge  of  a  Court  of  Record. 

This  Board  of  three  shall  expeditiously,  fully  and 
carefully  inquire  into  matters  reported  to  it  and  all 
matters  affecting  the  merits  thereof,  in- 
cluding the  question  of  whether  or  not 
the  price  or  rental  of  any  article  con- 
cerned has  been  unreasonably  enhanced, 
or  competition  in  the  supply  thereof  un- 
duly restricted. 

They  then  shall  make  report  to  the  Minister, 
which  report  shall  set  forth  the  various  proceedings 
and  steps  taken  by  them,  including  such  findings  and 
recommendations  as  in  the  opinion  of  the  Board  are 
in  accordance  with  the  merits  and  requirements  of  the 

203 


Board  of 
Inquiry. 


I  f  i 


J 

1 

\ 
1 

j 

T 

t 

i 

» 

1 

i 

5 

■  1 

PRICE    MAINTENANCE 

case.  In  short,  it  is  incumbent  on  the  applicant  repre- 
senting the  buyers  to  convince  the  Judge  that  the 
prices  have  been  unreasonably  enhanced,  and  it  is  in- 
cumbent on  the  representative  of  the  sellers  to  demon- 
strate to  the  Judge  that  the  prices  are  fair  and  reason- 
able and  that  the  competition  has  not  been  unduly 
restricted. 

Thus  it  is  apparent  that  the  side  which  is  able  to 
<;onvince  the  Judge  that  their  contention  is  right,  will 
be  the  one  which  shall  be  recommended  in  the  report 
to  the  Minister  of  Labor,  as  the  decision  of  the  Board. 

If  the  seller  is  found  to  be  guilty  of  unduly  re- 
jstraining  trade  or  commerce  in  relation  to  any  such 
Article;  or  if  unduly  preventing,  limiting  or  lessening 
the  manufacture  or  production  of  any  such  article ;  or 
of  unreasonably  enhancing  the  price  thereof;  or  of 
unduly  preventing  or  lessening  competition  in  the  pro- 
duction, manufacture,  purchase,  barter,  sales,  trans- 
portation, storage  or  supply  of  any  such  article,  he 
shall  be  immediately  ordered  to  abandon  the  combine 
or  agreement  and  the  order  to  dissolve  such  combina- 
tion shall  be  duly  published  in  the  Canada  Gazette. 

If,  however,  he  thereafter  continues  so  to  offend, 
he  is  guilty  of  an  indictable  offence  and  shall  be  liable 

to  a  penalty  not  exceeding  one  thousand 
dollars  and  costs  for  each  day  after  the 
expiration  of  ten  days,  or  such  exten- 
sion of  time  as  in  the  opinion  of  the 
Board  may  be  necessary,  from  the  date 
of  the  publication  of  the  findings  of  the  Board  during 
vsrhich  he  shall  so  continue  to  offend. 

204 


Penalty  if 

'OuUty. 


CkTmaa 

Law  on 

Combinatioiis. 


APPENDIX 

The  German  Law, 

In  Germany,  the  tendency  is  toward  fair  regula- 
tion of  reasonable  efforts  on  the  part  of  merchants  and 
manufacturers  to  co-operate  for  mutual  protection  and 
preservation. 

Under  the  German  law  there  may  be  a  selling 
agreement  and  a  number  of  manufacturers  or  pro- 
ducers or  sellers  of  a  certain  article  or 
class  of  products  may  agree  not  to  sell 
their  product  below  a  specified  mini- 
mum price  agreed  upon  by  all  the  mem- 
ber of  the  combination,  and  changed 
from  time  to  time  in  accordance  with  the  varying  cost 
of  production  and  general  requirements  of  the  market. 
Such  combinations  are  recognized  by  Section  241 
of  the  "German  Civil  Code"  so  that  agreements  to  re- 
frain from  lowering  prices  are  not  illegal  in  that  coun- 
try. They  are,  however,  subject  to  investigation,  and 
legal  control  so  that  their  fairness  may  be  maintained 
and  that  the  public  may  be  properly  protected. 

^  It  is  to  be  hoped  that  at  an  early  date  the  Ameri- 
can public  will  recognize  the  benefits  to  be  secured  from 
a  fairer  attitude  toward  reasonable  and  right  regula- 
tion of  business,  so  that  better  conditions  may  prevail. 
It  is  undeniably  true,  that  in  America,  as  in  every  other 
country,  the  interests  of  the  business  men  and  the  pub- 
lic are  so  closely  interwoven  that  they  are  one  and  the 
same,  and  that  the  business  interests  of  the  country 
cannot  suffer  without  affecting  the  prosperity  and  wel- 
fare of  the  general  public. 

205 


^ 


M 


PRICE    MAINTENANCE 

It  will  be  interesting  to  read  a  few  extracts  from 
the  decisions  of  Germany's  Imperial  Supreme  Court 
from  which  can  be  gathered  the  rights  and  duties  of 
business  combinations  rather  than  in  the  statutory 
law  which  is  silent  on  the  question. 

The  Court,  after  acknowledging  that  foreign  coun- 
tries (mentioning  authorities  in  France,  Russia  and 
the  United  States)  follow  contrary  principles,  bases  its 
opinion  that  it  is  to  the  benefit  of  the  public  that  prices 
should  be  kept  in  a  normal  state,  on  the  following  ar- 
gument : 

"If  in  any  branch  of  business  the  prices  so  decline 
that  a  profitable  trade  is  made  impossible  thereby,  or 
that  the  trade  is  seriously  endangered,  the  crisis  at  the 
start  is  not  only  injurious  to  the  individual  person,  but 
also  from  a  national  economical  point  of  view,  and  it 
lies,  therefore,  in  the  interest  of  the  whole  that  the  in- 
adequately low  prices  in  a  certain  branch  of  business 
should  no  longer  exist.  Therefore,  formerly  and  at  the 
present  time,  legislators  have  aimed  to  increase  prices 
of  certain  products  by  inaugurating  protective  tariffs. 

"It,  therefore,  cannot  be  looked  upon  as  generally 
contrary  to  the  interests  of  the  whole,  if  manufacturers 
of  a  certain  article  form  a  cartel  in  order  to  prevent, 
or  to  modify,  the  mutual  underbidding  and  the  decline 
of  prices  for  their  products  caused  thereby;  on  the 
contrary  if  the  prices  are  continually  so  low  that  the 
manufacturers  are  threatened  with  financial  ruin,  their 
forming  a  cartel  is  not  only  to  be  looked  upon  as  a  justi- 
fied manifestation  of  self-preservation,  but  also  as  an 
act  which  lies  in  the  interest  of  the  whole. 

206 


APPENDIX 

"The  forming  of  syndicates  and  cartels  in  ques- 
tion, therefore,  has  been  designated  by  prominent  econ- 
omists as  a  means  which,  if  reasonably  applied  to  na- 
tional economics  is  especially  adapted  to  prevent  un- 
natural over-production  which  yields  no  profit  result- 
ant catastrophies." 


207 


PART  II 


COST  OF  DOING  BUSINESS 


COST  OF  DOING  BUSINESS 


!  ;• 


The  ever-increasing  fierceness  of  competition  has 
demonstrated  the  necessity  for  the  most  careful  man- 
agement of  business  enterprises.  Profits  are  too  finely 
cut  to  permit  a  continuance  of  rule-of -thumb  methods 
and  greater  concentration  is  necessary  to  obtain  great- 
er accuracy.  Careful  calculation  plays  a  most  import- 
ant part  in  business  to-day  and  success  depends  largely 
upon  the  inauguration  of  better  methods  all  around, 
involving  a  means  of  securing  clear,  concise  and  ac- 
curate information  relative  to  the  condition  of  one's 
business. 

This  subject  of  the  cost  of  doing  business  is  of 
prime  importance,  and  while  there  is  nothing  essential- 
ly new  in  the  article  herewith  presented,  perhaps  it 
will  serve  to  make  business  men  think  a  little  more 
deeply  of  the  obligation  due  them  by  the  business  in 
which  they  are  engaged. 

The  increasing  cost  of  selling  a  given  amount  of 
goods  has  forced  business  men  to  look  into  the  matter 
very  thoroughly,  and,  if  possible,  find  some  remedy 
for  the  present  conditions,  although  it  is  admitted  that 
many  do  not  understand  the  full  significance  of  the 
question. 

811 


o 


.li 


i 

! 


Salesmen's 
Salaries   Higher 


COST    OF    DOING    BUSINESS 

Efficient  salesmen  are  demanding  and  receiving 
a  larger  remuneration.    There  is  only  so  much  busi- 
ness obtainable.    It  is  hard  to  increase 
the    volume,    and    if    one    merchant 
through  aggressive  measures  does  in- 
crease his  volume,  this  will  only  be  tem- 
porary, as  others  will  adopt  similar  ag- 
gressive measures,  which  will  result  in  an  equalization 
of  the  volume  of  business. 

Every  one  should  know  in  a  general  way  what  his 
salesmen  cost  to  sell  goods,  what  they  cost  in  per- 
centage, and  then  compare  his  house  costs. 

Salaries  of  Principals, 

Some  firms  or  corporations,  where  there  are  three 
or  four  principals  only,  have  been  in  the  habit  of  charg- 
ing little  or  nothing  to  the  expense  ac- 
count for  the  salaries  of  these  princi- 
pals. 

Some  cases  have  come  to  our  notice 
where  but  $1,200  or  $1,500  a  year  has 
been  charged  off  for  those  who  would  most  assuredly 
not  have  accepted  any  such  remuneration  working  for 
others,  but  who  saw  fit  to  incorrectly  minimize  their 
expense  account  by  charging  off  such  inadequate 
amounts,  relying  upon  the  profits  at  the  end  of  the 
year  for  their  full  remuneration. 

In  most  cases  such  principals  have  been  the  most 
active  men  in  the  house;  they  have  been  Executive 
Heads,  Buying  and  Sales  Managers  and  General  Man- 
agers. 

Sometimes  they  have  sold  a  large  amount  of  goods 

212 


Salaries  of 
Principals 


Salaries  for 

Principals 

Should  Be 

Charged 


COST    OF    DOING   BUSINESS 

in  connection  with  their  other  duties.  One  particular 
case  comes  to  mind  where  a  member  of  the  firm  sold 
$60,000  worth  of  goods  per  annum,  and  in  addition  to 
that  did  all  the  buying  for  the  house.  No  salary  what- 
ever was  charged  off  either  for  work  in  the  house  or 
on  the  road. 

Surely  for  this  work  others  would  have  been  paid. 
Therefore,  why  not  charge  off  some  proper  amount 
instead  of  having  a  member  of  the  firm 
do  this  work  and  charge  nothing  for 
services  rendered.  How  would  such  a 
partner  fare  if  there  were  several  in- 
active partners  sharing  equally  in  the 
profits  ? 

Possibly  a  fair  average  estimate  of  what  amount 
as  salaries  of  active  principals  should  be  charged  off 
would  be  double  that  of  any  other  person  in  the  em- 
ploy of  the  house. 

The  principals  not  only  furnish  experience  and 
expert  guidance,  but  never-ending  responsibilities  and 
anxieties  devolve  upon  them,  and  on  their  policies  and 
actions  depend  the  profit  or  loss  shown  by  the  busi- 
ness. 

Where  the  principals  do  not  actively  participate  in 
the  conduct  of  the  business  others  are  well  remuner- 
ated. Their  salaries  are,  of  course,  charged  off  to  the 
expense  account. 


Rent, 


Should  Bent  Be 


It  is  rather  startling  that  there  is    ^^^  Building? 
any  diversity  of  opinion  regarding  such 
an  important  item  as  rent. 


213 


.•ll 

it 


COST    OF    DOING    BUSINESS 

Some  firms  have  stated  that  they  were  under 
trifling  expense,  and  when  rent  was  mentioned  have 
said,  "What?  Rent!  Why,  we  pay  no  rent!  We  own 
the  building.  Of  course,  we  charge  off  taxes  and  re- 
pairs to  the  expense  account,  but  we  have  a  great 
advantage  over  competitors  in  that  respect,  for  they 
must  pay  rent." 

Surely,  if  they  would  not  have  occupied  the  build- 
ing it  would  have  been  rented  at  market  prices,  and 
in  our  opinion  they  should  charge  off  every  year  the 
amount  which  they  could  secure  for  the  property  if  it 
were  rented  to  another  party,  probably  8  per  cent,  on 
the  market  value  and  repairs  and  taxes  and  water 
rent 

Interest  on  Monies  Invested. 

Charging  interest  on  capital  being  a  mooted  ques- 
tion, it  is  probably  well  to  present  some  of  the  various 

phases  of  the  subject,  as  follows: 

One  may  readily  secure  the  cur- 
rent rate  of  interest  on  capital  by  in- 
vesting in  securities  of  such  a  character 
as  to  preclude  any  appreciable  chance  of 
losing  the  principal. 

What  a  person  expects  to  gain  who  embarks- in 
business,  superintending  the  employment  of  his  own 
capital,  is  much  more  than  the  rate  of  interest. 

The  rate  of  profit  should  be  far  in  excess  of  the 
rate  of  interest. 

The  first  and  prime  duty  of  the  business,  there- 
fore, is  to  earn  the  current  rate  of  interest. 

This  should  be  without  regard  to  dividends,  for 

214 


Interest  on 
Capital 


i 


Unjust   Claims,   Unexpected   Losses   or   Depreciation 
Would  Soon  Wipe  Out  Such  a  Narrow  Margin. 

See  page  244. 


» \ 


\ 


COST    OF    DOING    BUSINESS 

a  sale  is  really  made  at  less  than  cost,  if  not  equal  to 
or  in  excess  of  the  invoice  cost  plus  operating  expenses, 
including  interest  on  capital. 

If  interest  on  capital  is  included  when  making  up 
the  cost,  and  the  year  is  not  a  good  one,  the  dividends 
will  at  least  be  guaranteed  if  sales  have  not  been  made 
at  less  than  cost;  and  by  cost  is  meant  invoice  cost 
plus  operating  expenses,  including  interest  on  capital. 

Of  course,  losses  must  surely  result  in  years  of 
depression  when  sales  are  reduced  to  a  minimum  and 
the  ratio  of  expenses  to  sales  rises  out  of  all  normal 
proportions. 

The  surplus  profit  earned  is  partly  in  the  nature 
of  compensation  for  the  risk  involved.  He  who  enters 
into  business  always  exposes  his  capital  to  some,  and 
in  many  cases  to  very  great,  danger  of  partial  or  total 
loss. 

For  this  danger  he  must  be  compensated  liberally ; 
otherwise,  of  what  use  would  it  be  to  incur  it? 

Writing  on  the  subject  of  "Profits,"  the  eminent 
scholar,  John  Stuart  Mill,  said:  "The  gross  profits 
from  capital,  the  gains  returned  to  those  who  supply 
the  funds  for  production,  must  suffice  for  three  pur- 
poses : 

"First— They  must  afford  a  sufficient  interest  on 
capital. 

"Second— They  must  afford  a  sufficient  indemnity 
or  surplus  earning  for  the  risks  involved. 

"Third— They  must  afford  a  proper  and  adequate 
remuneration  for  the  labor  and  skill  required  on  the 
part  of  the  principals." 

These  different  compensations  may  be  paid  to  the 

215 


COST    OF    DOING    BUSINESS 

same  or  different  persons.  It  is  thus  clearly  demon- 
strated that  John  Stuart  Mill  held  the  following  opin- 
ions: 

First — That  it  is  essential  to  charge  interest  on 
capital  to  provide  for  him  who  furnishes  it  and  who 
may  not  personally  undertake  the  risks  and  trouble  of 
the  business. 

Second — That  the  surplus  earnings  may  readily  be 
distributed  to  those  entitled  to  them. 

Third — That  the  salaries  of  principals  should  en- 
ter into  the  expense  account  in  order  to  present  a  true 
statement  of  net  earnings. 

If  a  firm  were  to  be  started  by  men  with  a  thor- 
ough knowledge  of  the  business  and  but  little  capital 

they  would  be  forced  to  borrow  money 
and  pay  interest  on  it.  To  such  a  firm 
with  inadequate  capital,  the  charge  of 
interest  on  capital  is  made  through  the 
necessary  charge  of  the  interest  on  the 
borrowed  money,  which  constitutes  their  capital. 

Suppose  a  case  where  two  firms  are  doing  an  equal 
business,  each  using  $100,000  capital — one  has  cash 
capital  of  the  full  amount,  the  other  has  but  $40,000 
cash — and  borrows  $60,000  charging  interest  on  the 
borrowed  money  to  the  expense  account. 

Both  concerns  must  earn  a  profit  on  the  business 
done.  If  the  concern  with  owned  capital  ignores  the 
item  of  interest  on  capital,  will  they  not  fail  to  show 
as  satisfactory  a  result  at  the  end  of  the  year  as  the 
other  house? 

In  many  cases  where  the  owners  of  a  business 
desire  to  retire  and  sell  the  business  to  old  and  trusted 

216 


Kecessity  for 
Charging 
Interest  on 
Capital 


1 


COST    OF    DOING   BUSINESS 

employees — a  certain  amount  of  capital  may  be  al- 
lowed to  remain  in  the  business,  the  new  purchasers 
paying  the  interest  on  the  amount  to  the  former 
owners. 

In  order  to  make  any  headway,  and  to  ultimately 
make  a  success  of  the  business  and  complete  its  pur- 
chase, it  will  be  absolutely  necessary  to  consider  in- 
terest on  capital  as  an  expense  and  to  include  it  when 
figuring  overhead  or  fixed  charges. 

In  this  case  the  one  who  furnishes  the  capital  is 
remunerated  by  the  interest  which  must  be  paid  him, 
and  the  difference  between  the  interest  and  gross 
profit  may  be  laid  aside  as  a  surplus  account  for  the 
purchase  of  the  business. 

Even  if  such  men  had  started  with  plenty  of 
money  they  could  have  invested  it  in  bonds  or  mort- 
gages and  secured  interest,  leaving  the  work  of  man- 
agement to  others  and  with  little  if  any  chance  of  losing 
their  capital. 

In  partnership,  when  the  capital  is  not  equally 
contributed,  it  is  usual  and  customary  to  allow  each 
partner  interest  on  the  amount  of  capital  to  his  credit 
before  any  division  of  profits  is  made. 

The  most  successful  and  conservative  business 
men  hold  that  interest  should  be  charged  upon  capital, 
and  that  this  should  be  charged  to  the  expense  account 
and  not  to  the  interest  account. 

A  fair  plan  would  be  to  charge  at  least  4  or  6  per 
cent,  interest  on  capital  to  the  expense  account  as  a 
minimum  amount  for  the  capital  to  earn.  This  precau- 
tion will  provide  for  at  least  this  return,  and  the  excess 
profit  can  readily  be  taken  care  of  in  dividends. 

217 


4 


i 

.  i 

It.  I 


ill 


COST    OF    DOING    BUSINESS 

In  arriving  at  the  true  cost  of  merchandise  by  the 
only  proper  method,  viz.,  adding  the  overhead  expense 
to  the  invoice  cost,  the  cost  will  be  too  low  and  conse- 
quently incorrect  if  interest  on  capital  is  omitted.  The 
expense  account  should  be  forced  to  bear  the  interest 
on  all  monies  invested  in  every  case. 

This  would  include  interest  on  capital,  surplus  and 
borrowed  money. 

It  is  almost  universally  recognized  that  interest  on 
borrowed  money  should  be  charged  to  the  expense  ac- 
count, for  in  many  cases  it  would  not 

Interest  on  u  j.     i  'j. 

^  ^  be  necessary  to  borrow  money  were  it 

Sorrowea 

Money  ^^t  to   accommodate   some   delinquent 

customers. 

Bad  Debts. 

A  charge  of  the  average  percentage  of  losses 
should  be  made  to  the  expense  account  to  take 
care  of  bad  debts,  as  it  is  necessary  to  include  this  in 
the  cost  to  make  the  results  satisfactory  at  the  end  of 
the  year. 

If  the  important  item  of  bad  debts  (which  are 
constantly  with  us)  is  not  considered  as  an  element 
of  overhead  expense,  how  is  the  loss  to  be  met?  Is 
it  not  far  better  to  meet  the  inevitable  loss  by  antici- 
pating it  when  making  selling  prices,  than  by  suffer- 
ing a  decrease  in  gross  profits  ? 

The  percentage  of  losses  varies  in  different  busi- 
nesses from  1-10  of  1%  to  IV2  or  2%.  Some  houses 
claim  to  have  practically  no  losses  from  bad  debts, 
but  the  claim  in  such  cases  is  usually  based  on  false 
pride  and  not  on  facts. 

218 


COST    OF    DOING    BUSINESS 

RECAPITULATION  OF  OPERATING  EXPENSES. 

The  following  summary  shows  the  various  items 
of  expense  to  be  considered : 

Direct : 

Salaries  of  salesmen. 

Traveling  expenses  of  salesmen. 

Advertising,  including  catalogues. 

Gifts  to  customers. 

Salaries  of  buying  department. 

Expenses  of  buying  department. 

Labor  and  expenses  of  warehousing  department. 

Labor  and  expenses  of  shipping  department,  in- 
cluding all  deliveries  to  transportation  companies  and 
to  customers  locally. 


Rent. 


Indirect : 

Salaries  of  principals. 

Interest  on  capital. 

Interest  on  borrowed  money. 

Salaries  and  wages  of  house  employees. 

Stationery.  Postage. 

Telegraph.  Telephone. 

Insurance:  Fire,  credit,  casualty,  partnership, 
bonds,  liability,  plate  glass. 

Depreciation  on  merchandise  on  hand. 

Unjust  claims  by  customers.  Charity. 

Damage,  breakage,  loss,  freight  and  express 
charges  on  returned  goods. 

Collections. 

Miscellaneous  expense. 

Repairs. 

219 


Bad  debts. 
Store  supplies. 
Warehouse  supplies. 


COST    OF    DOING    BUSINESS 


I 


Fuel. 
Light. 
Heat 
Power. 

Freight. 


Warehouse  fixtures. 

Store  equipment. 

Office  equipment. 

Taxes. 

Legal  expense. 


It  is  far  wiser  when  in  doubt  to  charge  an  item  to 
the  expense  account  than  to  charge  it  to  the  merchan- 
dise or  any  other  account. 

Every  expense  which  is  shown  on  the  ledger, 
every  amount  for  which  you  have  no  positive  credit 
return  upon  your  ledger,  is  chargeable  to  the  cost  of 
doing  business.  In  other  words,  practically  every 
expenditure  should  be  put  in  the  expense  account,  ex- 
cept amounts  paid  for  merchandise,  and,  in  some  cases, 
freight. 

Special  Business. 

Exceptional  or  special  business  should  not  be  con- 
sidered in  ascertaining  the  average  percentage  of  ex- 
pense, for  if  included  in  the  amount  of 
gross  sales,  it  will  give  an  incorrect  and 
misleading  result  and  cause  a  loss  on 
the  regularly  obtained  business. 

For  example :  A  house  enjoyed  the 
patronage  of  a  large  public  service  corporation,  and 
for  a  very  small  commission  purchased  their  supplies. 

They  unwisely  merged  this  special  business  into 
their  regular  sales  to  the  trade  and  arrived  at  their 
percentage  of  expense  accordingly. 

Another  concern  through  certain  banking  connec- 
tions was  in  a  position  to  finance  companies  which 

220 


Sxceptional  or 
Special  Business 


COST    OF    DOING    BUSINESS 

used  material  in  which  they  dealt.  In  this  manner  a 
large  volume  of  business  was  secured.  Instead  of 
treating  it  as  special  business  when  calculating  the  per- 
centage of  expense  of  conducting  business,  they  merged 
it  with  their  regular  sales.  The  result  was  that  while 
their  regular  business,  obtained  through  their  sales- 
men, cost  them  certainly  15  per  cent,  on  the  sales,  they 
deceived  themselves  into  believing  that  it  cost  them 
but  9  per  cent. 

This  method  of  figuring  may  have  led  them  to 
believe  that  they  were  unusually  clever  in  handling 
their  business,  but  their  competitors  who  based  their 
figures  on  regular  business  must  have  suffered  as  a 
result,  and  they  themselves  surely  lost  through  their 
improper  methods. 

Attention  should  be  given  to  the  misleading  effect 
of  large  sales  of  staples  on  the  percentage  of  selling 
expense  for  the  month  or  year. 

It  has  been  recommended  by  some 
that  a  separate  record  of  large  sales  af- 
fording a  profit  of  less  than,  say,  7^ 
per  cent,  be  kept. 

Such  a  record  serves  to  keep  clear  the  true  per- 
centage of  expense,  for  certainly  no  sales  of  staples  in 
bulk  at  a  trifling  advance  over  cost  should  be  merged 
into  the  sales  account  of  regular  goods  sold  in  small 
quantities  at  a  greater  expense. 

No  business  man  should  allow  himself  to  be  de- 
ceived as  to  the  cost  of  doing  business  by  merging  such 
sales  into  the  regular  sales  account,  yet  not  a  few 
openly  boast  of  their  wonderful  work  in  reducing  their 
expense  accounts  by  2  or  3  per  cent,  when  the  truth 

221 


Sales  of 

Staples 


If 


f , 


jl 

II 


i    • 


Ck>8t  of  Selling 
Goods  Shipped 
Direct  from 
Factory 


COST    OF    DOING    BUSINESS 

is  that  the  supposed  reduction  is  caused  by  failure  to 
segregate  such  large  sales  as  are  here  referred  to. 

Direct  Shipments. 

The  question  of  the  cost  of  selling  goods  which 
are  shipped  direct  from  the  factory  to  the  customer  is 

one  which  is  frequently  brought  up. 

The     manufacturer     urging     this 
method,  possibly  with  the  hope  of  com- 
ing into  greater  direct  contact  with  the 
small  trade,  claims  that  business  han- 
dled by  direct  shipment  costs  nothing— that  it  is  all 
"velvet" — clear  net  profit. 

Is  it  not  necessary  to  go  to  some  expense  to  build 
up  friendly  relations  with  the  customer? 

Is  it  not  necessary  to  pay  the  salesman's  salary 
and  expenses  for  securing  this  business? 

Is  it  not  necessary  for  well-paid  buyers,  sales  man- 
agers and  clerks  to  give  their  close  attention  to  this 
business  that  it  may  be  properly  handled? 

Is  it  not  true  that  shipments  from  stock  may  be 
handled  by  a  lower  paid  class  of  help,  and  that  the 
business  may  be  disposed  of  in  a  day  or  two  instead 
of  the  two  or  three  weeks  necessary  to  close  a  transac- 
tion when  the  goods  are  sent  direct  from  the  factory? 
Is  not  the  credit  risk  on  direct  shipments  quite 
as  great  as  on  shipments  made  from  stock,  and  is  it 
not  true  that  on  direct  shipments  of  heavy  staples  you 
are  asked  to  incur  a  heavy  credit  risk  for  a  transaction 
at  no  profit  or  a  possible  loss? 

In  fact,  the  only  gain  is  a  more  prompt  turn-over 

222 


COST    OF    DOING    BUSINESS 

of  capital,  a  saving  of  warehouse  handling  and  a  saving 
of  warehouse  rent.  It  is  still  necessary  to  meet  all  the 
other  items  of  expense. 

A  large  national  association  of  wholesalers,  in 
issuing  a  letter  to  its  members  on  figuring  costs,  re- 
ferring especially  to  the  large  volume  of  direct  ship- 
ments in  carloads  and  less  than  carload  lots,  or  other 
special  business  done  on  a  small  margin  over  cost, 
said: 

"Assuming  that  a  firm  does  $500,000  worth  of 
business  at  what  they  call  legitimate,  or  regular  prices, 
and  $200,000  worth  of  direct  shipment  and  carload 
business  at  from  5  to  10  per  cent,  profit  above  the  net 
cost,  such  a  firm  would  consider  its  gross  sales  as 
$700,000,  and  figuring  the  expense  of  doing  business 
at  $100,000,  would  say  that  the  cost  of  doing  business 
was  14.29%.  Thus  the  fact  that  they  were  fooling 
themselves  would  be  very  obvious. 

"We,  therefore,  suggest  as  follows:  That  the 
$200,000  worth  of  business  which  is  done  at  a  very  low 
percentage  of  profit  above  the  net  cost,  should  be 
segregated  from  what  may  be  called  legitimate  sales, 
and  the  actual  money  made  on  direct  or  carload  busi- 
ness should  be  credited  to  gross  expense. 

"Thus,  legitimate  business  $500,000;  carload  and 
direct  shipment  business  $200,000,  with  a  profit  of 
$12,000  on  the  $200,000;  total  expense,  $100,000,  less 
$12,000,  leaving  $88,000.  The  percentage  of  the  cost 
of  doing  business  would  then  be  $88,000  on  gross  vol- 
ume of  $500,000,  or  17.60%. 

"Possibly  we  can  make  ourselves  more  clear  by 
stating  that  one  large  wholesaler  of  our  acquaintance 

223 


•  -•i ) 


II 


COST    OF    DOING    BUSINESS 

does  not  consider  a  sale  as  a  legitimate  part  of  his 
salesman's  record  unless  it  bears  a  profit  in  excess  of 
10%.  Thus  if  a  salesman  has  sold  $6,000  worth  of 
goods  a  month,  and  $1,000  worth  of  these  goods  have 
been  sold  on  less  than  10%  profit,  the  head  of  the  house 
considers  that  the  salesman  has  sold  only  $5,000  worth 
of  goods  and  declines  to  consider  the  salesman's  record 
on  any  other  basis." 

A  Query. 

Question :  If  it  costs  18  per  cent,  to  sell  $100,000 
worth  of  goods,  the  18  per  cent,  taking  care  of  the 

general  expenses  and  all  operating  ex- 
penses, should  it  cost  18  per  cent.,  or 
$18,000,  to  sell  the  next  $100,000  worth 
of  goods? 

Answer :    It  should  not,  but  it  does. 
Many  have  an  idea  that  by  increasing  the  volume 
of  their  business  the  percentage  of  expense  can  be 
materially  reduced,  but  a  reply  to  this  by  a  large  mer- 
chant is  quoted  as  follows : 

"We  have  an  interesting  illustration  of  the  amount 
of  expense  in  the  years  1907-1908  and  1909.  The  year 
1907  was  a  very  good  one.  Our  sales  increased  very 
largely  as  compared  with  1906.  Our  percentage  of  ex- 
pense decreased  very  materially.  Then  there  was  a 
pressure  on  the  management  to  make  improvements. 
We  wanted  more  men  in  some  departments.  The  sales 
department  wanted  more  help.  In  1908  we  increased 
our  expenses  by  adding  more  men  to  our  office,  stock  and 
shipping  force.  So  when  the  total  of  1908  was  com- 
pared with  1907  we  found  the  increase  in  the  expense 

224 


Do  Expenses 
Decrease  Witli 
Increased  Sales? 


/ 


COST    OF    DOING    BUSINESS 

account  was  very  considerable.  When  you  have  a  good 
year  everybody  will  want  something,  and  when  there 
is  a  bad  year  you  don't  reduce  that  expense.  There  are 
good  people  you  don't  want  to  let  go,  and  our  expense 
account  varies  from  year  to  year.  If  we  have  a  good 
year  we  catch  up,  but  you  have  to  increase  help  and 
expenses." 

Tables  Showing  Average  Selling  Expenses. 

Investigation  into  the  conditions  surrounding  the 
sale  of  various  lines  of  merchandise  has  been  made 
from  time  to  time  by  the  brightest  minds  in  each  par- 
ticular line. 

On  the  following  pages  will  be  found  some  tables 
of  average  selling  expense  which  have  been  presented 
as  a  fair  statement  of  cost  of  selling  in  the  businesses 
covered. 

There  is  quite  a  similarity  existing  between  the 
expense  accounts  in  various  lines.  Some  wholesale 
businesses  are  conducted  at  a  selling  expense  of  5  or 
6%,  while  in  many  retail  businesses  the  overhead  ex- 
pense runs  from  20%  to  30%  on  the  selling  price. 


225 


M 


ll 


I 


COST    OF    DOING    BUSINESS 


Statement  of  Selling  Expenses. 


Doe  Plumbing  Supply  Company, 
Wholesale  Plumbing  and  Steam  Supplies. 


Based  on  Gross  Bminess  of $500,000  per  year. 

Capital  of 75,000  ]] 

Borrowed  Money 50,000 

Amount  in  Amount  in 

Dollars  Percentage 

Salaries  and  wages ?45,000  9.00 

Rent  6,500  1.30 

Heat,  light  and  power 1,250  .25 

Taxes   1,250  .25 

Traveling  expenses   7,000  1.40 

Insurance 1,000  .20 

Interest,  $50,000  borrowed  at  41/2% .     2,250  \        ^  ^k 

Capital  at  4% 3,000  /        ^•'' 

Cartage    6,000  1.20 

Boxing  500  .10 

Postage 1,250  .25 

Stationery  and  printing 750  .15 

Telephone 750  .15 

Freight  and  express 500  .10 

Catalogues,  advertising,  gifts  to  cus- 
tomers, charity  and  miscellaneous 

expenses 6,000  1.20 

Bad  debts   5,000  1.00 

Damage,  breakage  and  transporta- 
tion charges  on  returned  goods..     1,000  .20 
Allowance  and  claims 1,000  .20 

$90,000  18.00 

This  18%  on  the  selling  price  is  22%  on  cost. 

226 


COST    OF    DOING    BUSINESS 


Statement  of  Selling  Expenses. 


John  Doe  &  Company, 
Machine  Tool  Dealers. 


Based  on  Gross  Business  of $500,000  per  year. 

Capital  of 75,000 

Borrowed  Money 50,000  " 

Amount  in  Amount  \m 

Dollars  Percentage 

Salaries  of  principals. $9,000  1.80 

Salaries  of  salesmen. 10,000  2.00 

AH  other  salaries  and  wages 6,000  1.20 

Rent  6,000  1.20 

Heat,  light  and  power 1,100  .22 

Taxes   600  .12 

Traveling  expenses 4,400  .88 

Insurance 800  .16 

Interest,  $50,000  borrowed  at  6% . . .     3,000  1  .  ^^ 

Capital,  at  6% 4,500  j  ^'^^ 

Cartage 300  .06 

Boxing  1,200  .25 

Postage 1,200  .25 

Stationery  and  printing 1,000  .20 

Telephone 600  .12 

Freight  and  express 2,000  .40 

Catalogues,  advertising,  gifts  to  cus- 
tomers, charity  and  miscellaneous 

expenses 2,000  .40 

Bad  debts   2,200  .44 

Damage,  breakage  and  transporta- 
tion charges  on  returned  goods..        500  .10 
Allowance  and  claims 800  .16 

$60,000  12.02 

Note. — This  12.02  per  cent,  on  the  selling  price  is 
13%  per  cent,  on  the  cost. 

227 


\ 


i 


COST    OF    DOING    BUSINESS 


Statement  of  Selling  Expenses. 


Doe  Wholesale  Hardware  Company. 


Based  on  Gross  Business  of $500,000  per  year. 

Capital  of 75,000 

Borrowed  Money 50,000  " 

Amount  in  Amount  In 

Dollars  Percentage 

Salaries  of  principals $9,000  1.80 

Salaries  of  salesmen 18,000  3.60 

All  other  salaries  and  wages 10,500  2.10 

Rent  6,000  1.20 

Heat,  light  and  power 1,500  .30 

Taxes   950  .19 

Traveling  expenses  8,000  1.60 

Insurance 800  .16 

Interest,  $50,000  borrowed  at  41/2% .     2,250  .45 

Capital,  at  4% 3,000  .60 

Cartage 5,000  1.00 

Boxing 700  .14 

Postage 1,000  .20 

Stationery  and  printing 1,000  .23 

Telephone 500  .10 

Freight  and  express 1,800  .36 

Catalogues,  advertising,  gifts  to  cus- 
tomers, charity  and  miscellaneous 

expenses 5,000  1.00 

Bad  debts 2,500  .50 

Damage,  breakage  and  transporta- 
tion charges  on  returned  goods . . .     1,500  .30 
Allowance  and  claims 1,000  .20 

$80,000  16.00 

Note. — This  16  per  cent,  on  the  selling  price  is  19 
per  cent,  on  the  cost. 

228 


COST    OF    DOING    BUSINESS 

FIGURES  FURNISHED  BY  MR.  W.  W.  LOW, 

OF  THE  Electric  Applunce  Company,  Chicago, 

Showing  Just  What  Per  Cent,  of  Total  Yearly  Sales  is 

Consumed  in   Operating  Expenses   and  How 

Divided  in  the  Electrical  Supply  Business, 


1 

as 

SeparMe  Item* 
of  Expense 

Houses  with  Yearly  Sales 
Exceeding  $750,000 

Houses  with  Yearly 

Sales  Less  Than 

$750,000 

1 

A 

B 

c 

D 

E 

F 

G 

H 

1 

Rent 

.75 

.79 

.40 

1.18 

.72 

1.80 

1.54 

.90 

2 

Intunmcc 

.13 

.36 

.03 

.11 

.15 

.23 

.50 

.29 

» 

Electric  Light, 
Heat  and  Power 

.13 

.34 

16* 

.12 

.14 

.09 

1^ 

.09 

4 

Freight,  Express 
and  Cartage 

"1.03 

1.26 

1.58i 

1.14 

1.31 

3.50 

3.37 

4.61 

5 

Boxing  and 
Packing* 

.26 

16* 

ie» 

.30 

.18 

.73 

.15 

4* 

6 

Stationery 

.32 

.19 

12* 

.35 

.37 

.48 

.39 

.33 

7 

Postage 

.54 

.34 

12» 

.33 

.48 

.81 

.45 

8 

Salesmen  Salaries 
&  Traveling  Exp. 

4.28 

3.30 

4.93i 

3.80 

3.57 

5.30 

4.21 

6.12 

9 

Law  Collections 
and  Charity 

.14 

.11 

16* 

.10 

.23 

16» 

.25 

.07 

10 

Taxes 

.14 

.06 

16* 

.10 

.03 

.15 

16* 

.14 

11 

General  Salaries 
and  Wages 

4.38 

5.25 

4.10 

3.60 

6.69 

3.16 

5.59 

4.02 

12 

Advertising 

.52 

.84 

1.25 

.55 

.25 

.32 

.30 

.36 

13 

Catalogs 

.47 

.50 

.07 

.08 

6* 

.13 

14 

Bad  Accounts 

.16 

.09 

.14 

.23 

.42 

.0004 

.83 

1.32 

15 

Furniture  and 
Fixtures 

.04 

.07 

16* 

.11 

.13 

.037 

.24 

.10 

16 

General  Expense 

1.44 

2.23 

2.33i 

.43 

.27 

1.41 

2.56 

1.41 

17 

'     Salaries  of 
Principals 

.94 

1.21 

ll^ 

1.75 

.53. 

2.43 

11* 

11* 

18 

Total 

15.67 

16.44 

15.27J 

14.20 

15.06 

20.1974 

20.74 

20.34 

The  separate  items  of  expense  are  numbered  consecutively. 
Where  a  number  appears  in  bold  faced  tjrpe  with  the  asterisk,  it 
signifies  that  that  particular  item  of  expense  is  included  in  the 
item  bearing  that  number.  For  example,  in  column  B  under  item 
five  appears  16*,  which  signifies  that  the  boxing  and  packing  is 
included  under  item  16  which  is  general  expense. 

229 


COST    OF    DOING    BUSINESS 

A  Summary  Illustrating  the  Conditions  in  Connection 
With  the  Sale  of  Harness  and  Horse  Goods 

at  Retail, 

The  following  summary  of  a  business  of  $20,000.00 
per  annum  has  been  prepared,  giving  approximate 
figures  showing  expenses  that  would  probably  be  in- 
curred in  the  conduct  of  such  a  business,  based  on  a 
capital  of  $5,000.00 : 

Statement  of  Selling  Expenses. 


The  Hustler  Retail  Harness  Company. 

Based  on  a  gross  business  of  $20,000.00  per  annum. 

Capital  of  $5,000.00. 


Salaries  and  wages $2,000.00 

Rent 480.00 

Interest  on  capital 300.00 

Interest  on  borrowed  money 50.00 

Taxes 100.00 

Insurance   59'9? 

Light,  heat,  etc 60.00 

Advertising •  •  100.00 

Stationery  and  printing 50.00 

Postage 40.00 

Repairs   JO.OO 

Freight  and  express 150.00 

Bad  debts 200.00 

Miscellaneous  expense  50.00 

Depreciation  on  merchandise  or  on  furniture 

and  fixtures  50.00 

$3,720.00 

This  $3,720.00  is  18  6-10  per  cent,  of  the  annual 
sales  of  $20,000.00. 

230 


Some  Pertixieiit 

Questions  to 

(Consider 


COST    OF    DOING    BUSINESS 

Figuring  18  6-10%  overhead  expense  on  the  sell- 
ing price  if  a  merchant  desired  a  net  profit  of  5%  he 
would  sell  goods  costing  $1.00  at  $1.30.  It  should  be 
remembered  that  cost  is  not  a  thing  to  he  added  to — it 
is  merely  a  per  cent,  of  the  selling  price.  Therefore 
with  an  overhead  expense  of  18.6%  and  a  desired  net 
profit  of  5%  it  is  evident  that  cost,  or  $1.00,  is  76.4%, 
and  that  the  selling  price,  or  100%,  is  $1.30. 

More  Queries. 

What  is  the  percentage  of  cost  of  conducting  your 
business?    In  figuring  this,  please  take  your  total  ex- 
pense  and   total   amount   of   business 
done,  but  do  not  include  any  special  or 
tonnage  business,  such  as  that  which  is 
referred  to  on  pages  220  to  223. 

What  percentage  does  it  cost  you 
for  the  business  taken  by  your  salesmen?    In  answer- 
ing this  question  you  should  not  figure  in  the  house 
expense. 

What  percentage  does  it  cost  for  house  expenses? 
In  figuring  this  take  total  cost  of  running  your  busi- 
ness, less  cost  of  traveling  salesmen,  and  figure  on  the 
total  amount  of  business  done. 

Do  the  officers  of  your  company  or  the  heads  of 
your  firm  draw  what  you  would  call  a  reasonable  sal- 
ary? Would  they  accept  a  similar  amount  from  others 
for  services  of  a  like  nature  and  consider  the  com- 
pensation adequate? 

Do  you  charge  rent  if  you  own  your  building? 

Do  you  charge  all  possible  monies  paid  out  to 
the  expense  account  and  consequently  to  the  cost  of 
doing  business,  so  that  your  actual  financial  condition 

231 


t 


COST    OF    DOING    BUSINESS 

is  revealed  at  the  end  of  any  stated  period ;  or,  are  you 
careless  and  do  you  try  to  deceive  yourself  by  making 
your  showing  appear  better  than  it  really  is? 

Do  you  keep  a  separate  account  of  each  depart- 
ment, so  that  you  may  know  what  percentage  of  profit 
each  makes;  what  the  gross  profits  are,  and  what  the 
expense  is,  in  order  that  you  may  have  accurate  knowl- 
edge of  what  every  department  is  doing? 

Do  you  figure  the  profit  on  all  your  sales,  so  that 
you  keep  yourself  constantly  informed  of  your  condi- 
tion, and  take  any  steps  necessary  to  bolster  up  profits, 
or  do  you  wait  until  the  end  of  the  year  to  see  what 
has  happened? 

Do  you  keep  a  record  of  each  salesman's  sales — 
profits,  salary  and  traveling  expenses — and  do  you 
know  what  percentage  of  profit  he  has  made  after  de- 
ducting his  salary  and  expenses  from  the  gross  profits, 
not  considering  the  house  expense?  If  you  do  this, 
with  the  percentage  of  your  house  or  inside  expenses 
before  you,  you  will  know  the  actual  value  of  each 
salesman.  Some  who  are  first  in  the  sales  column  may 
be  last  in  the  profit  column. 

Do  you  charge  interest  on  money  used  in  the  busi- 
ness as  a  factor  in  the  cost  of  doing  business,  or  do 
you  look  to  your  final  results  at  the  end  of  the  year 
to  take  care  of  this,  and  run  the  risk  of  giving  custom- 
ers the  use  of  your  money  for  nothing? 

The  average  percentage  of  expense 
Average  Cost  of  of  distributing  merchandise  at  whole- 
Distiibuting         ^^j^  seems  to  vary  but  little  in  different 

Merchandise   at  " 

Wholesale  businesses. 

From   authentic   information   and 

232 


ii 


V 


Exact  Figures 
Essential 


COST    OF    DOING    BUSINESS 

accurate  data  collected  from  a  large  number  of  whole- 
sale houses  the  percentage  of  expense  of  distributing 
steam,  gas  and  water  supplies,  plumbing  material,  miU 
supplies,  electrical  supplies,  hardware  and  many  other 
lines  has  been  found  to  average  between  15  and  20  per 
cent,  on  the  sales. 

Exact  knowledge  is  exceptional  in  the  world  of 
commerce,  but  the  fact  remains  that  the  prudent  man 
who  has  an  ideal  record  of  costs  and 
applies  his  knowledge  practically  is  the 
one  who  outdistances  all  his  competitors 
in  the  long  run. 

He  is  the  one  who  adopts  the  meth- 
ods calculated  to  attract  the  more  profitable  class  of 
business ;  to  handle  the  goods  of  quality  in  such  a  way 
as  to  more  easily  negotiate  a  profit;  to  avoid  taking 
the  unprofitable  class  of  business  generally  fought  for 
by  those  who  do  not  count  the  cost.  He  who  keeps  the 
cost  constantly  in  mind  and  directs  his  energies  accord- 
ingly is  the  man  whose  business  grows;  whose  new 
warehouses  attract  the  favorable  comment  of  the  mer- 
cantile community;  while  his  competitor  who  fails  to 
chart  his  course  with  such  precision  flounders  about, 
making  no  progress,  becoming  more  and  more  con- 
vinced that  the  fault  is  not  his  by  any  means,  but  that 
the  business  is  hopelessly  unprofitable. 

Often  in  attempts  to  make  a  good  showing,  sales 
are  forced  blindly  as  far  as  a  knowledge  of  net  profit 
is  concerned,  when  it  would  be  far  better  if  a  careful 
investigation  of  the  cost  of  handling  business  were 
made  and  practical  common  sense  and  judgment  em- 
ployed in  adjusting  prices  accordingly. 

233 


I 


COST    OF    DOING    BUSINESS 

Manufacturers  have  always  added  their  "over- 
head" and  selling  expenses  to  the  other  items  entering 
into  the  cost  before  arriving  at  what  they  consider 
cost.  Merchants,  however,  have  not  followed  this  cus- 
tom, with  the  result  that  salesmen,  and  even  principals 
have  unconsciously  felt  that  any  amount  secured  above 
their  invoice  cost  was  profit.  Following  the  manu- 
facturers' method  of  using  a  true  cost,  sales  could  be 
made  at  cost  without  suffering  any  actual  loss,  as  all 
operating  expenses  are  taken  care  of  in  this  cost.  Were 
a  merchant  to  sell  goods  at  what  he  invariably  calls 
his  cost,  however,  he  would  suffer  an  actual  loss  equal 
to  the  amount  of  his  operating  expense. 

Therefore,  would  it  not  be  advisable  to  figure  costs 
by  adding  the  overhead  expense  and  when  discussing 
profits  with  manufacturers  let  it  be  understood  that  no 
profit  is  realized  until  the  fixed  charges  are  covered. 

What  is  the  True  Cost? 

Speaking  on  this  subject,  a  merchant  said: 
"Now,  then,  what  is  the  proper  cost  of  goods?  Is 
it  the  price  paid  at  the  factory?  Is  that  the  cost? 
You  add  freight.  Why?  Now,  are  there  no  other  ex- 
penses which  are  as  much  a  part  of  the  cost  of  those 
goods  as  the  freight  charges?  Is  not  the  expense  of 
the  man  who  buys  those  goods  just  as  much  a  part 
of  the  cost?  Is  not  the  salesman's  expense,  or  your 
order  man  putting  them  up,  your  bookkeeper,  your  bill 
clerk,  your  house  managers,  your  postage,  your  rent, 
and  every  other  individual  item  that  is  connected  with 
the  expense  account  part  of  the  cost? 

234 


Percentage  of 

Expense  Not 

tlie  Same  on 

All  Ooods 


COST    OF    DOING    BUSINESS 

"If  these  are  a  part  of  the  cost,  why  not  add 
them?" 

It  should  be  borne  in  mind  that  the  expense  sus- 
tained by  a  business  house  during  the  year  gives  the 
average  percentage  of  expense  of  sell- 
ing all  goods,  but  does  not  give  the  per- 
centage of  expense  of  selling  any  par- 
ticular one  of  the  many  lines  of  goods 

handled. 

It  is  well  known  that  certain  heavy  staples  in  con- 
tinual demand  are  less  expensive  to  handle  than  are 
small  goods  on  which  the  demand  is  lighter  and  the 
cost  of  handling  greater.  For  instance,  where  the 
average  cost  of  doing  business  is  15  per  cent,  it  will 
probably  cost  in  the  neighborhood  of  7%  to  10  per 
cent,  to  handle  heavy  staples.  It  will  cost  about  30 
per  cent,  to  handle  high-grade  small  goods — ^bulky, 
fragile  goods  which  are  possibly  of  a  seasonable  char- 
acter, and  items  where  the  unit  of  sale  is  small.  Other 
goods  which  take  up  considerable  space  in  warehouses 
probably  cost  about  from  18  to  30%  to  handle. 

In  arriving  at  the  cost  of  handling  the  various 
lines  or  classes  of  goods,  the  proper  proportion  of  the 
expense  of  doing  business  and  the  expense  of  each 
salesman  in  effecting  sales  should  be  segregated  and 
charged  against  them. 

A  leading  wholesale  hardware  house  considers 
and  charges  specifically  to  each  department  or  line 
of  goods  the  following  items  of  expense : 

"1.  Interest  at  . .  per  cent,  on  the  amount  in- 
vested in  stock. 

"2.     Insurance  and  taxes  on  stock. 

235 


COST    OF    DOING    BUSINESS 

"3.  A  rental  charge  for  the  floor  space  occupied 
in  store  and  warehouses,  together  with  repairs  and 
alterations,  and  insurance  and  taxes  on  buildings. 

**4.  . .  per  cent,  upon  the  amount  of  sales  for  a 
provision  against  bad  debts. 

"5.  The  salaries  and  other  expenses  incurred  ex- 
<;lusively  (including  any  travelers  engaged  specially) 
for  the  department. 

"6.  Departmental  advertising  and  expense  of 
<jatalogues  in  proportion  to  the  amount  of  space  occu- 
pied. 

"7.  A  proportion  of  all  general  traveling  ex- 
penses calculated  on  the  basis  of  the  cost  of  sales 
made. 

"8.  A  proportion  of  all  other  general  salaries  and 
expenses  of  the  house,  based  on  the  cost  of  the  total 
sales  of  the  house  and  calculated  on  the  cost  of  sales 
in  each  department. 

"(Note. — General  expenses  comprise  salaries  of 
officers,  cashiers,  bookkeepers,  entry  clerks,  etc.,  whose 
services  are  of  a  general  character  and  cannot  be 
segregated  into  one  or  more  departments ;  the  propor- 
tion of  rent  for  offices,  aisles,  etc.,  also  postage,  light, 
heat,  cleaning,  stationery,  advertising  of  a  general 
character,  telephones  and  telegraph,  donations,  and 
the  other  sundry  expenses  which  are  necessary  in  con- 
ducting business. 

"The  sum  total  of  these  general  expenses  is  divid- 
ed among  the  various  departments  in  proportion  to 
the  cost  of  the  goods  sold,  for  the  reason  that  it  is  con- 
sidered a  more  equitable  basis  than  the  amount  of 

236 


COST    OF    DOING    BUSINESS 

sales,  because  it  would  be  unfair  toward  a  department 
manager  who  obtains  a  good  rate  of  profit  on  his  goods 
to  be  charged  a  heavier  rate  of  expense  in  consequence, 
as  compared  with  a  department  showing  a  lower  rate 
of  profit. 

"Consideration  should  also  be  given  to  the  num- 
ber of  times  a  year  that  the  goods  can  be  turned ;  the 
proportion  which  the  item  bears  to  the  whole  amount 
of  goods  sold ;  the  portion  of  the  hauling  and  packing 
account  which  the  item  should  assume. 

"In  dividing  traveling  salesmen's  salaries  and  ex- 
penses, a  less  proportion  is  segregated  against  the  de- 
partments comprising  heavy  staples,  for  the  reason 
that  less  time  is  necessary  for  selling  these  articles 
than  the  general  line  of  goods. 

"By  means  of  this  close  calculation  of  the  various 
expenses  the  actual  cost  or  business  expense  of  each 
department  is  arrived  at,  and  a  percentage  represent- 
ing the  total  of  such  expense  is  added  to  the  flat  cost 
of  the  goods  in  each  department,  in  order  to  obtain 
the  catalogue  or  store  cost  prior  to  the  addition  of  the 
proper  percentage  of  profit." 

The  percentage  of  expense  of  handling  any  given 
line  of  goods  or  a  class  of  goods  in  which  a  particular 
line  would  naturally  fall,  can  be  ascertained  by  fol- 
lowing these  rules.  This  plan  may  appear  to  be 
somewhat  radical  at  first  glance,  but  it  is  not  so  much 
so  as  one  would  think. 

It  is  not  necessary  to  employ  a  high-priced  sta- 
tistician to  figure  the  cost  down  to  the  hundredth  part 
of  1  per  cent.,  but  the  cost  of  handling  different  classes 
of  goods  may  readily  be  ascertained  by  a  careful  calcu- 

237 


^i 


» 


!^ 


I 


Cost  of  Sollixig 
Staples 


COST    OF    DOING    BUSINESS 

lation  and  consideration  of  the  conditions  under  which 
they  are  handled  and  sold. 

In  every  business  there  are  staples  which  are  sold 
at  a  trifling  advance  over  the  invoice  cost. 

Now,  if  it  is  ascertained  that  it  costs  7^^  per 
cent,  to  distribute  these  staples  and  they  are  sold  on 

a  margin  of  but  2V^  per  cent,  profit, 
the  fact  that  you  know  that  it  costs  7Vi 
per  cent,  to  handle  them  may  not  imme- 
diately result  in  a  higher  price  being 
secured,  but  certainly  when  you  keep 
before  you  the  fact  that  you  are  sustaining  a  loss  of 
5  per  cent,  on  their  sale  something  will  be  done  to  at 
least  cover  the  expense  of  selling. 

It  has  been  remarked  that  merchants  will  sell 
goods  down  to  a  basis  of  2V^  per  cent,  profit,  but  that 
one  rarely  hears  of  a  merchant  selling  goods  right 
down  to  invoice  cost.  If  staples  cost  $1  and  the  ex- 
pense of  distribution  is  71^  per  cent.,  why  could  not 
the  selling  price  at  least  be  made  equal  to  the  true  cost, 
which  would  be  in  the  neighborhood  of  $1.08V^  (con- 
sidering that  the  cost  of  doing  business  is  always 
figured  on  the  selling  price,  which  would  make  it  about 
8^4  per  cent,  added  to  cost)  so  as  to  avoid  a  loss  on 
the  transaction. 

Again,  with  the  present  method  of  selling  staples 
at  an  advance  of  but  a  trifle  over  net  cost,  it  is  neces- 
sary to  secure  an  extortionate  profit  on  other  goods 
to  make  up  the  deficiency.  Such  a  practice  is  bad  in 
its  effect  on  the  business,  and  forces  business  men  to 
do  some  things  which  are  harmful  and  inequitable  in 
the  extreme. 

238 


f 


COST    OF    DOING    BUSINESS 

Where  Does  Jobbers'  Cutting  Stop? 

A  prominent  merchant  said  some  time  since  in  ad- 
dressing a  body  of  business  men : 

"Now  there  is  another  question  that  I  would  like 
to  put  to  you  in  this  line :  Did  you  ever  stop  to  think 
where  demoralization  of  prices  stopped?  Now,  gen- 
tlemen, you  all  say  that  you  cannot  get  this  price  and 
cannot  get  that  price.  Have  you  ever  had  a  salesman 
that  sent  in  an  order  that  he  didn't  get  a  little  more 
than  factory  price  or  cost  of  goods?  Is  not  that  true? 
Just  consider  and  see  if  it  is  not  a  fact  that  in  all 
the  great  demoralizations  of  prices  that  we  have  been 
compelled  to  go  through,  and  I  speak  of  not  only  the 
present  condition,  but  of  four  years  previous  to  last 
year,  if  the  bottom  that  was  reached  on  goods  was  not 
within  5  per  cent,  of  the  factory  cost.  Why  was  it, 
gentlemen?  Why  did  it  stop  there?  If  demoralization 
takes  place  and  there  is  no  control  of  the  prices,  why 
do  you  stop  at  any  particular  point?  Did  you  ever 
stop  to  think  of  it?  Instead  of  selling  those  goods  cost- 
ing $100.00  at  $105.00,  why  did  he  not  sell  at  $90.00? 
I  tell  you,  gentlemen,  because  that  salesman  came  home 
and  looked  you  in  the  face  and  said,  *I  could  not  get 
any  more  money  on  this,  but  I  got  $5  on  this  sale,  and 
that  produces  that  much  toward  the  expense  account.' 

"Gentlemen,  you  will  not  stop  demoralization,  it 
is  my  belief,  until  you  fix  the  cost  and  your  salesman 
will  not  go  very  far  below  that  cost.  That  is  the  first 
great  strong  powerful  step  for  us  to  take.  Put  on  a 
cost  that  includes  all  fixed  charges  of  doing  business." 

It  may  be  said,  "The  plan  sounds  all  right,  but  is 

239 


, 


I 


I 


1^ 


COST    OF    DOING    BUSINESS 

it  practical— will  it  work  out?"  In  answer  to  this 
possibly  the  best  reply  is  that  it  is  and  has  been  found 
entirely  feasible  and  quite  satisfactory  by  those  houses 
which  have  adopted  it. 

By  following  this  plan  selling  prices  may  be  equit- 
ably based  on  the  true  cost  of  handling  each  line  or 
class  of  goods. 

If  under  a  haphazard  plan  of  pricing— some  goods 
costly  to  handle  have  been  priced  too  low — a  readjust- 
ment can  readily  be  made.  In  fact,  you  will  have 
selling  prices  based  on  precise  knowledge  of  costs, 
and  no  sales  can  be  made  at  less  than  your  true  cost 
without  an  instant  realization  of  the  fact. 

The  general  impression  among  manufacturers 
seems  to  be  that  goods  should  be  distributed  on  10  per 
cent,  and  that  15  per  cent,  is  a  fabulous  profit.  It  is 
patent  to  the  jobbers,  however,  that  such  differentials 
are  not  remunerative  and  scarcely  cover  operating  ex- 
penses. 

A  profit  of  5  per  cent,  would  undoubtedly  be  satis- 
factory to  the  jobber,  but  this  5  per  cent,  must  be 

"in  the  clear,"  after  the  expense  of  dis- 
A  SmaJi  Profit,    tribution  has  been  defrayed. 
But  Jt^  Must  Again,  figure  true  costs,  and  do  not 

deceive  yourself.  If  goods  are  billed  at 
$1  each  and  it  costs  you  15  per  cent,  on  the  sale  to  sell 
them,  speak  of  your  cost  as  $1.18,  and  let  it  be  known 
that  no  profit  is  made  unless  the  sale  is  made  in  excess 
of  that  figure. 

Scientific  accounting  in  business  and  knowledge 
secured  with  absolute  accuracy  has  determined  that  it 

240 


COST    OF    DOING    BUSINESS 

costs  the  jobbing  trade  $15.00  to  sell  every  hundred 
dollars  worth  of  goods. 

Many  of  the  salesmen,  and,  it  grieves  us  to  say, 
many  of  the  merchants  doing  business  to-day,  feel  that 
if  a  sale  of  $100.00  has  been  easily  made  and  the  goods 
cost  $84.00,  that  they  have  made  a  clear  profit  of 
$16.00.  They  should  banish  this  thought  from  their 
minds  immediately  and  forever. 

The  fact  is,  that  they  have  made  a  clear  profit  of 
but  $1.00;  they  seem  to  have  entirely  overlooked  the 
fact  that  the  overhead  selling  expenses  apply  to  every 
dollar's  worth  of  goods  they  sell  and  that  no  sale,  of 
any  character  whatsoever,  can  be  made  without  bear- 
ing this  fixed  selling  or  overhead  expense. 

One  way  to  bring  forcibly  to  the  attention  of  the 
employees  the  cost  of  doing  business  is  to  state  to  them 
the  fact  that  every  day  the  house  does  business,  it  must 
make  $800.00,  or  $1,000.00,  or  $1,200.00,  or  $1,500.00, 
or  $2,000.00  gross  profit,  as  the  case  may  be,  before  it 
makes  any  net  profit. 

Another  way  in  which  the  matter  could  be  very 
-strongly  put  is,  that  there  were  117,000  invoices  ren- 
dered during  a  fixed  year;  that  the  total  business  was 
$2,340,000.00  and  that  the  profit  was  $46,800.00,  or  a 
profit  of  but  20  cents  net  on  each  invoice;  thus,  if  a 
mistake  occurred  on  a  bill  and  it  cost  $2.00  or  $3.00 
to  correct  such  a  mistake,  it  would  take  ten  or  fifteen 
other  bills  to  equalize  the  cost  of  that  mistake. 

Again,  the  records  of  many  houses  have  been  ex- 
amined, and  the  net  profit  over  a  period  of  years  has 
been  found  to  average  but  2%  on  the  sales,  with  a 
turnover  of  the  money  invested  of  from  3  to  Sy^  times^ 

241 


li 


COST    OF    DOING    BUSINESS 

Just  think  of  it,  only  2%  on  the  sales.  If  the  year 
is  one  of  great  decline  in  price,  it  means  that  the  profits 
are  wiped  out  entirely.  Again,  if  losses  are  heavy  that 
year,  it  means  that  the  small  2%  margin  is  gone. 

One  reads  in  the  newspapers  statements  made 
by  a  shoe  manufacturer,  who  also  retails,  to  the 
effect  that  he  will  charge  the  consumer  5%  clear 
profit  on  their  shoes.  They  say  that  5%  is  all  they 
want,  and  further  explain  that  they  mean  5%  over 
and  above  the  cost  of  manufacture,  including  all  over- 
head factory  costs,  cost  of  distribution,  cost  of  super- 
intendence, etc.,  of  the  manufacturer.    The  plan  is 

explained  as  follows : 

"An  important  departure  in  the  American  shoe  trade  is 
found  in  the  new  selling  plan  adopted  by  a  large  shoe  manufac- 
turing company,  which  for  years  has  been  selling  its  brand  of 
shoes  at  a  fixed  scale  of  prices.  Under  the  new  arrangements 
the  company's  product  will  hereafter  be  sold  to  the  retailer  at 
cost  plus  5  per  cent.  This  scheme  wiU,  of  course,  involve  the 
employment  of  a  scientific  system  of  cost  records.  The  actual 
production  cost  of  each  model  of  shoe  is  thus  ascertained,  proper 
consideration,  of  course,  being  given  to  interest  and  depreciation 
charges.  Selling  expenses— cost  of  putting  the  shoe  in  the  con- 
sumer's hands— as  well  as  the  5  per  cent,  profit  are  then  added, 
and  the  resultant  sum  stamped  on  the  bottom  of  the  shoe. 
Finally  the  entire  calculation  is  verified  and  attested  by  public 
chartered  accountants.    An  official  of  the  company  says  in  this 

connection : 

"We  are  simply  applying  to  the  retail  shoe  business  a  method 
which  is  successfully  in  vogue  in  the  wholesale  shoe  business.  It 
is  anything  but  a  price-cutting  campaign,  as  we  expect  to  make 
5  per  cent,  profit  on  our  total  turnover,  and  that  is  all  we  ever 

plan  to  make. 

"It  is  true  that  an  established  tradition  of  the  shoe  trade  is 
thereby  shattered,  but  the  gain  is  to  the  consumers.  Prices  for 
shoes  are  universally  graduated  on  the  *even  money'  basis,  al- 
ways multiples  of  the  half  dollar.  If  the  leather  entering  into 
a  $4  shoe  drops  20  cents  a  pair,  no  reduction  in  prices  follows  to 

242 


COST    OF    DOING    BUSINESS 

the  consumer,  although  the  honest  manufacturer  will  feel  con- 
strained to  put  more  value  into  the  shoe  to  the  extent  of  the 
saving  in  leather  cost.  On  the  other  hand,  should  leather  advance 
20  cents,  it  generally  happens  that  the  amount  of  the  advance  is 
taken  out  of  the  quality  of  the  shoe  or  the  selling  price  is  raised 
a  full  half  dollar.  We  propose  to  build  our  shoes  entirely  with- 
out reference  to  any  fixed  retail  standard,  allowing  the  price  to 
fall  where  it  will." 

Now,  does  not  that  mean  that  it  is  necessary  to 
have  a  certain  amount  over  and  above  everything  to 
pay  for  the  cost  of  doing  business  and  to  make  a  profit, 
and  when  it  is  different  from  that,  does  not  it  mean 
that  something  inferior  must  be  substituted  or  some- 
body else  must  lose  some  money? 

The  public  are  freely  patronizing  this  company 
on  this  basis,  but  are  there  not  wholesalers  who  would 
hold  up  their  hands  in  "holy  horror"  if  anyone  sug- 
gested that  they  pursue  such  a  policy  in  making  up 
all  selling  prices,  for  it  surely  would  be  declared 
that  5%  net  profit  on  sales  was  too  much  to  even  hope 

for. 

In  view  of  these  indisputable  facts  and  statements 
of  conditions  prevailing,  salesmen  should  not  be  per- 
mitted to  change  selling  prices  arbitrarily.  The  prices 
which  are  fixed  by  the  house,  with  a  thorough  knowl- 
edge of  conditions  and  with  carefully  compiled  figures 
of  costs  before  them,  should  be  the  lowest  prices  at 
which  the  goods  should  be  sold.  No  idea  should  be  al- 
lowed to  linger  in  the  minds  of  the  salesmen  that  they 
will  be  permitted  to  vary  from  these  fixed  selling  estab- 
lished prices. 

Public  opinion  generally  seems  to  be  opposed  to 
combinations  to  uphold  prices.  The  time  has  come, 
however,  for  business  men  to  bolster  up  a  declining 

243 


COST    OF    DOING    BUSINESS 

range  of  prices  by  protecting  tTiemselves  and  the  in- 
vestors whom  they  represent. 

Mercantile  pursuits  must  do  more  than  return  a 
meagre  5  or  6  per  cent,  dividend  for  the  lif eblood  which 
is  poured  into  them.  Such  a  return  could  easily  be 
swept  away  by  some  unfavorable  turn  of  the  market. 
It  has  been  the  experience  of  some  merchants  to 
conduct  a  business  of  $500,000,  $1,000,000  or  $2,000,- 

000  per  annum  at  an  average  percent- 
age of  expense  of  15  per  cent,  over  a 
A  Poor  Betum    period  of  years.  The  dividends  declared 

have  amounted  to  but  7  per  cent.,  or  a 

net  profit  on  the  turnover  of  but  IV2 

per  cent.    Would  not  a  slight  turn  for  the  worse  in  the 

market,  a  few  heavy  losses  or  a  run  of  unjust  claims 

wipe  out  such  a  narrow  margin? 

Turning  Over  Capital 

Investigation  in  many  lines  of  merchandising  has 
shown  that  the  capital  employed  is  "turned  over"  from 

214  to  4  times  a  year. 

Many  wholesalers  are  today  mak- 
ing dividends  of  but  7%— turning  their 
capital  31/2  times — a  net  profit  of  2% 
on  the  sale. 
The  activity  of  the  capital — and  all  monies  em- 
ployed in  a  business — is  most  important  and  is  reflected 
vividly  in  the  results  at  the  end  of  the  fiscal  year. 

In  discussing  this  question  recently  a  prominent 
wholesale  grocer  in  Philadelphia  in  a  paper  prepared 
and  read  endeavored  to  show :    First,  how  much  busi- 

244 


Number  of 
Times  Capital 
Is  Turned 


COST    OF    DOING    BUSINESS 

ness  can  be  done  with  a  given  amount  of  capital ;  and, 
Second,  how  much  capital  should  be  employed  to  do  a 
given  amount  of  business ;  and  as  a  practical  illustra- 
tion gave  in  round  numbers,  taken  from  exact  figures, 
not  including  real  estate,  furnished  him  by  fourteen 
jobbers  in  as  many  State,  as  follows : 


Capital 

$  150,000 
150,000 

1,100,000 
400,000 
635,000 
600,000 
250,000 

1,250,000 
325,000 
200,000 
240,000 
865,000 
192,000 
240,000 


MdM. 

$100,000 
150,000 
550,000 
250,000 
550,000 
290,000 
235,000 
965,000 
140,000 
108,000 
235,000 
650,000 
133,000 
130,000 


Timei  Timet 

C«*h  and  turn  turn 

RecdTables  Sales  Mdae.  Capital 

85,000  $    500,000  4.7  3.3 

100,000  800,000      5.3  5.5 

700,000  3,000,000      5.4  2.7 

240,000  1,500,000      6.0  3.8 

485,000  2,500,000      4.4  3.9 

410,000  1,800,000      6.2  3.0 

280,000  1,400,000      6.0  5.5 

850,000  6,400,000      6.6  5.1 

180,000  1,000,000      7.2  3.1 

207,000  1,100,000  10.7  5.7 

265,000  1,400,000      5.8  5.7 

750,000  3,250,000      5.1  3.8 

178,000  900,000      6.7  4.7 

132,000  1,150,000      8.9  4.8 


From  this  list  it  will  be  seen  that  the  capital  is 
turned  from  2.7  to  5.7,  and  that  the  merchandise  is 
turned  from  4.4  to  10.7.  "It  is,  therefore,"  said  the 
writer  of  the  paper,  "fair  to  consider  that  a  merchant 
cannot  expect  to  turn  capital,  even  under  the  most 
favorable  circumstances,  more  than  six  times;  so  if 
the  capital  is  $100,000,  the  maximum  business  in 
groceries  at  wholesale  that  should  be  done  is  $600,000. 
Where  the  capital  is  limited,  attention  should  be  given 
to  increasing  profits  rather  than  increasing  sales. 

"It  will  be  noted  that  one  firm  turns  its  capital 
only  2.7  times  and  one  its  merchandise  only  4.4  times. 

245 


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kr 


I 

I  I 


\    I 

1,1 


i> 


COST    OF    DOING   BUSINESS 

Randolph  Whitman  in  his  little  booklet,  *Dead  Without 

Knowing  It,'  says : 

"  'Easy  Finance  has  killed  a  whole  lot  more  busi- 
nesses than  it  ever  saved.' 

"One  thing  is  certain,  too  much  capital  leads  to 
over-stocking,  and  is  in  no  way  desirable.  Not  over 
$100,000  should  be  employed  to  do  a  wholesale  grocery 
business  of  $500,000." 

Different  conditions  rule  in  different  localities. 
There  can  be  no  hard  and  fast  rules  for  the  con- 
duct of  business,  but  it  is  certain  that  this  showing  in 
the  wholesale  grocery  business,  where  capital  is  sup- 
posed to  be  especially  active,  may  be  of  value. 

In  the  wholesale  hardware  business  the  matter  of 
the  "turnover"  of  capital  and  the  net  percentage  of 
profit  on  sales  was  made  the  subject  of  an  official  in- 
vestigation with  the  following  result : 

In  66  replies  the  aggregate  capital  represented 
was  $20,100,000,  and  which  was  turned  as  follows : 
1  house  turned  its  capital  IV2  times. 


4 

it 

it 

it 

18/4 

M 

6 

U 

t* 

M 

2 

« 

4 

a 

M 

44 

2V4. 

It 

7 

M 

« 

44 

2% 

tt 

1 

M 

M 

44 

2% 

tt 

15 

<l 

M 

44 

3 

tt 

6 

u 

M 

44 

3^4 

tt 

4 

a 

M 

44 

3V4 

tt 

2 

M 

M 

44 

88/4 

tt 

6 

a 

ii 

44 

4 

tt 

4 

M 

M 

44 

Wi 

tt 

7 

u 

41 

44 

6 

tt 

246 


\ 


) 


COST    OF    DOING   BUSINESS 

From  54  replies  concerning  the  average  net  profit 
for  five  years  past  the  following  information  was 
obtained : 

1  house  made xy^^o  otl  sales 

1  "        "      2     9^0       " 

2  "        "      2V2%       " 

2      "        "      23^9{,       " 

2      "        "      3     %      " 

5      "        "      31/4%      " 

5  «        "      3V2%      " 

2  "     "   33^7o    " 

11      "        "      4     %      " 

3  "     "   4l^%    " 

4      "        "      4y2%       " 

1    "     "   43^%    " 

7    "     «   5  %    " 

6  "        "      51/2%      " 

1      "        "      7     %       " 

1      "        «      71/2%       " 

From  the  foregoing  figures  and  from  results  from 
various  wholesale  businesses,  one  is  inclined  to  think 
that  there  is  a  very  hazy  conception  of  what  business 
enterprises  are  justly  entitled  to  and  what  the  public 
generally  would  consider  fair. 

Many  goods,  particularly  staple  lines,  have  been 
and  are  being  sold  on  so  close  a  margin  that  it  probably 
influences  a  belief  against  the  possibility  of  doing  any- 
thing better,  and  so  many  business  houses  go  along  in 
a  rather  hopeless  manner  settling  down  to  the  discon- 
solate belief  that  6%  net  on  capital  is  all  that  a  busi- 
ness can  be  made  to  pay. 

247 


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\  •■ 


!  i 


'  COST    OF    DOING    BUSINESS 

Figuring  on  a  turn  over  of  capital  four  times  a 
year,  this  is  only  1V2%  on  the  sales.  Six  per  cent,  on 
capital  is  certainly  inadequate  for  it  does  not  pay  a 
reasonable  return  for  the  labor  involved  and  the  risks 
taken. 

Many  conservative  business  men  hold  that  an  av- 
erage of  5%  net  on  sales  would  not  be  at  all  extrava- 
gant or  excessive  for  the  labor  involved  and  the  risks 
assumed,  many  of  which  risks  cannot  be  or  are  not 
included  in  the  expense  account,  such  as  loss  by  fire 
not  fully  covered  by  insurance  (and  no  matter  how 
fully  one  is  insured  there  is  always  a  loss  from  fire), 
flood,  cyclone,  a  natural  accumulation  of  slow  stock, 
loss  through  sampling  and  broken  packages,  etc.,  un- 
usual failures  and  excessive  bad  debts,  unexpected  de- 
cline in  values,  such  as  often  happen  in  unnatural  mar- 
ket conditions,  and  many  other  causes  which  constantly 
eat  up  any  surplus  profit  gained  and  tend  to  weaken 
the  showing. 

Years  of  intelligently  directed  labor  and  owner- 
ship and  skillful  management  of  a  large  business  enter- 
prise should  bring  a  proper  reward. 

These  years  should  witness  the  ac- 
cumulation of  a  snug  fortune  as  a  pro- 
vision for   later  years   and   posterity. 
How  such  a  proper  ambition  could  be 
achieved  from  a  business  offering  such  small  returns 
is  not  evident,  and  will  probably  continue  to  be  im- 
possible unless  a  changed  policy  is  adopted  by  business 
men  generally. 

Every  man  starts  out  in  business  to  make  a  profit ; 

248 


A  Profit  Must 
Be  Negotiated 


COST    OF    DOING   BUSINESS 

but  nine  out  of  ten  men  forget  to  see  whether  their  bus- 
iness is  profitable  as  it  progresses.  They  imagine  that 
orders  mean  business ;  and  that  business  means  profit ; 
the  more  business  the  more  profit.  This  is  a  fallacy 
that  has  often  been  proved  in  that  severe  school  of  com- 
mercial education,  the  bankruptcy  court. 

Why  will  men  do  business  without  a  profit?  Do 
they  desire  to  become  public  benefactors,  paying  help 
and  working  to  distribute  the  wares  of  various  manu- 
facturers without  recompense?  Will  any  one  thank 
them  for  it? 

Will  the  customers  who  have  benefited  put  forth 
a  hand  to  save  a  bankrupt  from  the  workhouse,  when 
ruined  in  business  and  broken  in  health?  No!  not  a 
bit  of  it.  The  world  will  move  on,  shrug  its  shoulders, 
and  say,  "Why  was  he  fool  enough  to  work  at  no 
profit?" 

Is  not  a  business  affording  a  meagre  existence  for 
its  owners  who  give  their  lives  to  it  a  sorry  spectacle 
indeed?  Is  it  not  an  astounding  situation  to  those  who 
ponder  over  it? 

All  reason  and  common  sense  should  tell  a  man 
that  he  must  work  to  make  a  profit,  and  no  profit  can 
be  made  until  after  the  operating  expenses  are  de- 
frayed. Every  man  in  business  ought  to  have  con- 
stantly staring  him  in  the  face  the  words.  Make  a 
profit!  Write  it  large,  have  it  prominently  before  you 
«very  minute,  impress  its  importance  on  every  em- 
ployee who  has  to  do  with  sales.  Rub  it  in  thickly  for 
it  breeds  success— "Ma/ce  a  Profit r  "Make  a  Profit!" 
-•'MAKE  A  PROFIT !" 

249 


I  (I 


k 


..::, 


'  i 


11 


I  \ 


Haid  Work  for 
a  Small  Betum 


COST    OF    DOING    BUSINESS 

The  demand  for  a  better  and  more  equitable  re- 
turn is  fully  justified  and  must  be  pressed.    We  give 

to  our  business  all  we  have  of  time,  of 
labor,  and  devotion,  and  if  we  are  its 
servants,  at  least  it  should  pay  us  well, 
for  our  service  is  worth  more  than  the 
laborers'  wage. 
How  many  hours  have  you  worked,  how  many 
days  a  year,  to  make  a  beggarly  6  per  cent,  clear  on 
your  investment?     How  many  times  have  you  gone 
home  sick  with  the  worries  of  a  business  whose  ex- 
penses were  howling  like  wolves  at  the  heels  of  its 
profits  f 

And  what  for?  Partly  for  the  same  reason  that 
prompts  every  man — ^that  dogged  spirit  that  is  in  all 
of  us,  the  grim  determination  to  make  a  success  of  a 
hard  game.  Partly  that  and  partly  because  the  profit 
must  be  wrung  from  the  business  if  we  are  to  live. 
Most  of  us  are  willing  to  pay  the  price  and  succeed,  but 
at  what  a  terrible  cost. 

The  opportunity  has  now  come  for  men  of  com- 
merce to  develop  their  business  to  a  more  profitable 
degree  by  discontinuing  the  old  false  cost  system  and 
making  every  day  grow  bigger  in  its  dividend-earning 
power  by  selling  goods  at  a  price  based  on  the  true 
cost,  viz.,  the  invoice  price  plus  the  operating  expenses, 
paying  proper  attention  to  the  varying  cost  of  handling 
different  lines  of  goods. 

In  this  way,  and  in  this  way  only,  will  the  profit 
possibilities  of  the  business  of  distributing  merchan- 
dise be  realized. 

250 


PART  III. 


THE  RIGHT  WAY  TO  FIGURE 

PROFITS. 


I  ; 


\ 


¥ 


I 


V. 


c 
c 


THE  RIGHT  WAY  TO  FIGURE  PROFITS 


Correct  Metliod 

Should  Be 

Sought 


It  is  indeed  remarkable  that  on  such  an  important 
subject  as  the  method  of  calculating  the  percentage  of 
profits  there  should  be  such  a  variance  of  opinion  as 
seems  to  exist,  for  the  issue  involved  is  vital  to  the 
welfare  of  every  one  engaged  in  any  form  of  commer- 
cial activity. 

True,  the  vital  issue  is  the  showing  of  net  profit 
in  dollars  and  cents  at  the  end  of  the  year  when  the 
inventory  is  completed  and  books  are 
closed,  but  in  order  that  this  showing 
should  be  satisfactory,  the  proper  meth- 
od of  figuring  profits  should  be  pursued 
during  the  year.  In  our  mind  there 
should  be  no  misunderstanding  as  to  the  correct  method 
of  calculating  this  most  essential  element  in  every  bus- 
iness transaction,  for  accuracy  is  the  twin  brother  of 
honesty  and  right  methods  are  necessary  for  the  at- 
tainment of  any  desirable  thing. 

Every  man  engaged  in  business  ought  to  be  able 
to  see  that  John  does  not  have  50%  more  than  James, 
because  James  has  50%  less  than  John. 

Yet  many  business  men  seem  to 
have  persistently  refused  to  acknowl- 
edge that  any  per  cent  of  a  smaller  sum 
is  a  smaller  per  cent,  of  a  larger  sum — 

253 


They  Ought  to, 
But  Do  They? 


Text  Books 
Incomplete 


THE  RIGHT  WAY  TO  FIGURE   PROFITS 

that  if  a  fixed  sum  is  a  certain  per  cent,  of  a  certain 
sum,  it  is  a  smaller  per  cent,  of  a  larger  sum — 
or  to  put  it  concretely,  that  if  25  is  25%  of  100  it  is 
only  20%  of  125  and  25%  increase  over  cost  is  20% 
profit  on  the  selling  price. 

An  incorrect  or  incomplete  understanding  of  per- 
centage of  profits  and  failure  to  observe  the  proper 
method  of  figuring  the  percentage  of  profit  is  the  rock 
on  which  many  commercial  undertakings  have  gone  to 
pieces. 

The  subject  of  percentage  of  profit  has  not  been 
given  sufficient  consideration  by  the  school  and  college 

text  book  writers,  especially  from  the 
standpoint  of  business  men,  so  that  the 
insufficient  and  incorrect  understanding 
of  the  question  has  led  many  to  falsely 
believe  that  the  percentage  of  profit 
should  be  figured  on  the  cost. 

The  method  of  figuring  the  ratio  of  profit  on  the 
sale  is  declared  by  many  who  may  not  be  fully  informed 
to  be  diametrically  contrary  to  the  methods  taught 
in  our  schools,  and  is  therefore  loudly  decried  by  those 
who  now  insist  on  using  the  net  cost  as  a  base,  to  their 
consequent  loss. 

So  that  it  may  not  be  misunderstood,  it  should  be 
said  that  it  is  scientifically  correct  to  use  either  the 

cost  or  the  selling  price  as  a  base  in  fig- 
uring the  percentage  of  profit,  so  long 
as  it  is  stated  on  what  base  the  percent- 
age has  been  calculated.  This,  however, 
should  not  be  regarded  as  being  in  the 
nature  of  an  academic  discussion,  for  it  is  certainly  the 

254 


strictly  a 

Business 

Question 


THE   RIGHT  WAY   TO   FIGURE   PROFITS 

privilege  of  professional  men  to  hold  any  views  that 
they  may  prefer  on  this  subject;  but  it  is  hoped  that 
they  will  concede  to  business  men  the  same  privilege, 
especially  when  the  method  followed  has  such  a  de- 
cided effect  on  the  volume  of  net  profit  realized  from 
the  conduct  of  their  business,  and  permit  them  to 
adopt  that  method  which  most  fully  answers  their 
requirements.  The  idea  is  to  prevent  men  from  figur- 
ing the  cost  of  doing  business  on  the  gross  sales  and 
their  percentage  of  profit  on  the  cost  of  merchandise 
— without  appreciating  the  fact  that  it  makes  a  differ- 
ence. 

School  and  college  text  books  refer  to  this  question 
as  "Percentage  of  Gain  and  Loss,"  and  the  initial  figure 
or  cost  is  used  as  the  base. 

Some  text  books  use  as  the  base  a  prime  or  net 
cost  and  again  others  add  a  certain  amount  for  ex- 
penses using  the  gross  cost  as  the  base.  So  far  as  the 
question  under  discussion  is  concerned  the  percentage 
of  profit  should  be  figured  on  the  selling  price,  just  the 
same,  whether  prime  cost  or  cost  plus  selling  expense 
is  used. 

Many  of  the  examples  given  refer  to  abstract  fig- 
ures, citing  such  cases  as  the  following : 

"If  the  population  of  a  town  increases  from  30,000 
to  45,000,  what  is  the  percentage  of  gain? 

"Answer— 50%." 

This  is,  of  course,  correct,  and  the  words  "gain" 
and  "increase"  are  properly  used  in  this  connection, 
but  this  bears  no  relation  to  the  question  of  percentage 
of  profit  as  applied  to  commercial  transactions  involv- 
ing money. 

255 


THE   RIGHT  WAY  TO   FIGURE   PROFITS 


THE   RIGHT   WAY   TO   FIGURE   PROFITS 


I 


Hnndred  Per 
Cent.  Profit 
Impossible 


With  the  cost  as  a  base  or  100  the  text  books  figure 
that  if  25%  is  added  the  percentage  of  profit  is  twenty- 
five  one-hundredths  (25-100)  or  l^,  which  is  equal  to 
25%.  In  this  case  we  would  consider  the  cost  as  100 
and  the  added  25%  would  make  a  total  of  125. 

The  selling  price  should  be  considered  as  100  per 
cent.  (100%)  and  percentage  of  profit  would  be  25-125 

(one-fifth)  which  would  be  20%  profit 
on  the  sale. 

A  percentage  of  gain  or  increase  of 
many  hundred  per  cent,  is  possible,  but 
as  percentage  of  profit  is  on  sale,  100 
per  cent,  profit  is  impossible  unless  the  goods  are  se- 
cured free  of  charge. 

The  percentage  of  profit  and  the  percentage  of 
cost  of  doing  business  should  both  be  figured  on  the 

same  base. 

Most  Merchants  First,  let  US  consider  what  we  use 

Base  Figures  on  as  our  cost.    Almost  all  merchants  con- 
DeUvered  Cost     gj^er  as  cost  the  invoice  price  or  "prime" 

cost,  with  no  selling  or  other  expenses 
added,  merely  figuring  in  the  cost  of  delivery  to  their 
warehouse. 

All  operating  expenses,  storage,  selling,  office  ex- 
penses and  every  other  item  of  expense  and  profit  must 

be  provided  for  in  the  difference  be- 
tween this  net  cost  and  the  net  selling 
price. 

On  the  other  hand,  manufacturers 
very  generally  start  with  their  shop 
or  mill  cost  and  add  to  this  all  the  dir^t  outlays  inci- 

256 


Manufacturers' 
Cost  Includes 
Selling 
Expenses 


Variance  of 

Opinion 

Between 

Manufacturers 

and  Merchants 


Don't  Be 
Misled 


dent  to  placing  the  goods  in  the  hands  of  the  buyer. 
This  includes  storage,  selling  expenses, 
office  expenses,  packing,  freight  and  all 
miscellaneous  expenses,  making  a  gross 
cost  above  which  everything  is  profit. 

This  fact  accounts  in  a  measure  for 
the  variance  of  opinion  between  some  manufacturers 
and  merchants  on  this  question.     Manufacturers  are 
prone  to  tell  merchants  that  on  their 
line  of  goods  a  profit  of  25%  is  made, 
when  the  fact  is  that  the  gross  profit 
is  20%  on  the  sale.    If  arguments  of  this 
nature  are  properly  met,  a  change  of 
method  beneficial  to  the  entire  business  community  will 
be  effected. 

The  fact  is,  however,  that  no  matter  whether  the 
prime  or  gross  cost  is  used  the  percentage  of  profit 
should  be  calculated  on  the  selling  price. 

Business  men  generally  are  coming  to  a  knowledge 
of  the  fact  that  universal  convention  in  an  approved 
method  of  figuring  the  percentage  of 
profit  adapted  to  business  conditions, 
will  accrue  to  the  general  benefit  of  all. 

Some  of  the  more  important  rea- 
sons for  pursuing  this  method  of  figur- 
ing the  percentage  of  profit  on  the  sale  are  as  follows : 

In  every  business  (we  refer  more  particularly  to 
merchandising)  two  separate  amounts  of  capital  are 
required.  One  item  of  capital  is  required  for  invest- 
ment in  merchandise.  Another  item  of  capital  is 
necessary  for  operating  expenses,  selling  expenses  and 

257 


Universal 

Adoption  of 

Correct  Method 

Desirable 


II 


THE  RIGHT  WAY  TO  FIGURE   PROFITS 

all  other  expenditures  not  properly  chargeable  to  mer- 
chandise account. 

All  the  capital  invested  in  the  business  must  pro- 
duce a  proper  return.  Dividends  are  obviously  impos- 
sible on  the  entire  amount  of  capital  invested  unless  all 
is  considered  in  making  selling  prices. 

If  the  percentage  of  profit  is  reckoned  on  the  cost 
of  merchandise  only,  no  provision  is  made  for  the  other 
necessary  item  of  capital  demanding  returns. 

The  sales  totals  are  always  readily  ascertained, 
but  the  total  of  each  individual,  daily  and  monthly  cost 
of  goods  sold  is  seldom,  if  ever,  recorded  in  the  books 
of  business  houses. 

Therefore,  with  the  sales  totals  always  present 
and  the  fact  conceded  that  the  purpose  of  the  business 

is  primarily  selling,  is  not  the  sale  a 

proper  base  for  all  calculations,  and 

how  could  cost  be  considered  when  it  is 

not  definitely  known  by    reference   to 

sales  books? 

Gross  costs  can  only  be  ascertained  from  the  totals 

obtained  at  the  end  of  the  business  year,  and  are  not 

shown  daily  as  are  the  gross  sales. 

The  amount  of  profits  depends  largely  on  the  vol- 
ume of  business,  so  that  the  percentage  of  profits  to 
sales  is  clearly  indicative  of  the  character  of  the  year's 
work. 

The  percentage  of  profits  on  cost  would  not  in- 
dicate so  accurately  the  result  of  the  year's  business. 
The  percentage  of  expense  of  conducting  a  busi- 

258 


Total  Cost  Not 
Accessible 


Percentage  of 

Expense  is 

Found  on  Sales 


For  instance. 


THE  RIGHT  WAY  TO  FIGURE   PROFITS 

ness  may  be  readily  ascertained  by  dividing  the  gross 
expenses  by  the  gross  sales.  As  this 
percentage  of  expense  is  on  the  sales,  it 
is  thought  best  to  refer  to  the  percent- 
age of  profit  on  the  sale  to  avoid  any 
misunderstanding  and  consequent  loss 
through  the  use  of  any  other  method, 
if  you  figure  your  percentage  of  profit  on  the  cost  and 
your  overhead  expenses  on  the  sale — ^you  may  add 
25%  to  the  cost — ^with  an  overhead  expense  of  20% 
on  the  selling  price  and  expect  to  make  money.  Do 
you? 

The  fact  that  a  profit  is  not  made  until  a  sale  is 
actually  effected  further  advances  the  selling  price  as 
the  proper  basing  factor  for  percentage 
of  profit. 

The  salary  or  other  form  of  remun- 
eration of  salesmen  is  always  reckoned 
on  the  sale  and  the  amount  is  always 
based  more  or  less  on  a  percentage  of  the  sales  totals. 

Mercantile  or  other  taxes  of  a  sim- 
ilar nature  are  assessed  on  a  certain 
percentage  of  the  annual  sales. 

Also  if  any  special  taxes  are  levied 
by  the  state  on  the  sales  of  any  special 
goods,  such  as  revolvers,  drugs,  etc.,  the  amount  is 
always  a  certain  percentage  of  the  selling  price  of  such 
items  and  not  a  percentage  of  the  cost. 

All  allowances  in  percentage  to  cus- 
tomers for  any  reason,  or  no  reason  at 
all,  are  based  on  the  selling  price. 
There  is  the  10%  allowance  by  depart- 

259 


No  Profit  TOl 

Ooods  Are 

Sold 


Bemnneration 
of  Salesmen 


Mercantile 


I 


'V 


'■f 


Allowances 
Always  on  Sale 


THE   RIGHT  WAY   TO   FIGURE   PROFITS 

ment  stores  to  the  clergy,  dressmakers,  teachers,  etc. — 
all  deduct  the  lO^o  from  the  selling  price,  and  they 

neither  know  of,  nor  care  about  the 
cost. 

Certainly  the  astute  managers  of 
department  stores  do  not  add  10%  and 
then  allow  10  5^  thereby  losing  1%. 
The  use  of  terms  of  percentage  in  the  advertise- 
ments of  retailers  has  educated  the  consumer  to  figure 
percentage. 

No  merchant  enjoying  a  reputation  for  honesty 
would  think  of  making  such  an  alluring  promise  as  to 

give  a  dollars*  worth  of  goods  for  fifty 
cents  or  even  the  whole  dollars'  worth 
for  nothing. 

This  probably  seems  ridiculous,  yet 
such  expressions  as  "Let  us  save  you 
50%  to  100%  on  your  clothing  bills,"  are  used  by  some 
business  houses. 

None  can  fail  to  realize  what  a  saving  of  100% 
means.    It  means  that  they  are  going  to  give  away  the 

goods  or  merchandise  offered. 

The  consumer  only  has  before  him 
the  selling  price,  and  although  the  mer- 
chant may  be  making  200%  increase 
over  cost  on  his  goods,  he  can  never, 
never  make  any  money  selling  to  the  consumer  at  a 
saving  of  100%  even  if  he  got  the  goods  for  nothing — 
in  which  case  he  would  only  come  out  square  and  at  a 
loss  of  his  operating  expense. 

Again,  through  this  illustration,  we  see  the  ad- 
visability and  wisdom  of  figuring,  talking  and  thinking 

260 


In  Advertising 
We  Speak  of 
10  Per  Cent.  Off 


100  Per  Cent. 

••Saving'* 

Bidiculons 


4 


The  Other  Way 
— ^Fignring  on 

008t 


>» 


THE   RIGHT  WAY  TO   FIGURE   PROFITS 

of  the  percentage  of  profit  as  based  on  the  selling  price 
— not  on  the  cost. 

The  men  who  figure  profit  on  the  cost  price  aim  to 
prove  the  correctness  of  that  method  by  saying : 

"Start  out  with  a  dollar  in  your 
pocket,  and  buy  two  bushels  of  potatoes 
at  50  cents  a  bushel.  Sell  them  at  75 
cents  a  bushel.  You  now  have  a  $1.50. 
You  have  gained  50  cents.  Now  50 
cents  is  50%  of  $1.00,  and  the  profit  is  50%. 

We  are  dealing  with  the  man  who  keeps  books; 
who  knows  what  his  sales  totals  are;  who  has  an  ex- 
pense account ;  whose  salesmen  look  for 
a  compensation  equal  to  some  fixed  per- 
centage of  their  total  sales. 

If  our  potato-selling  friend  in  the 
illustration   had   incurred   extravagant 
overhead  charges — auto  delivery,  etc.,  to  sell  his  pota- 
toes and  his  selling  cost  would  have  been  40%  on  the 
sales — his  profits  would  have  been  losses. 

Some  have  an  impression  doubtless  based  on 
inaccurate  and  incomplete  information,  that  this  meth- 
od of  figuring  the  percentage  of  profit 
on  the  selling  price  is  for  the  purpose 
of  fooling  one's  self  into  the  belief  that 
one  is  making  less  money  than  is  really 
the  case.  This  is  not  so.  Business  men 
should  figure  the  percentage  of  profit  on  the  selling 
price  in  order  to  arrive  at  the  exact  truth  and  to 
avoid  fooling  themselves  into  believing  that  they  are 
making  money  when  they  are  losing. 

261 


This  Method  is 

One  for 

Merchants 


Only  the  True, 

Correct  Method 

Being  Sought 


« 


'.M 


M 


h 


ill  « 


i<3 


Besult  of 
Figuring 
Percentage  of 
Profit  on  Cost 


THE   RIGHT  WAY   TO   FIGURE   PROFITS 

Of  course,  net  profits  in  a  sufficient  volume  of 
dollars  and  cents  is  the  ultimate  goal,  but  again  the 
fact  may  be  repeated  that  correct  methods  are  neces- 
sary to  the  attainment  of  any  desirable  thing. 

As  an  illustration  of  the  greater  safety  of  figuring 
on  sales,  especially  with  untrained  minds  which  do  not 

properly  discriminate,  a  case  may  be 
cited  where  the  general  manager  of  a 
business  sold  an  article  which  cost  $.80 
for  $1.00  and  basing  his  percentage  of 
profit  on  the  cost  figured  that  he  was 
making  25%.  At  the  end  of  a  given  period  the  sales 
totaled  $20,000.  The  manager  told  a  stockholder  the 
amount  of  sales  and  also  the  percentage  of  profit. 

The  presumption  was  that  a  profit  of  $5,000.00 
had  been  realized,  while  the  books  only  showed  a  profit 
of  $4,000.00  or  20%  on  the  sales. 

This  general  manger  was  doubtless  like  many 
other  other  men  in  the  fact  that  it  is  necessary  for 
them  to  explain  many,  many  details.  Then,  why  add 
one  more  item  to  this  list  of  things  to  be  explained, 
when  useless,  time-wasting  expositions  could  be  spared 
manager  and  stockholder  by  figuring  on  the  selling 
price. 

Cases  have  come  to  our  notice  where  arrests  for 
defaulting  have  actually  been  made  in  such  in- 
stances, and  the  wisdom  of  figuring  the  percentage  of 
profit  on  the  sale  has  been  taught  the  prosecutor  and 
defendant  at  considerable  expense. 

As  a  specific  instance  of  a  case  where  the  matter 
of  the  method  of  figuring  the  percentage  of  profit  was 

262 


THE  RIGHT  WAY   TO   FIGURE   PROFITS 


Percentage  in 

the  Criminal 

Courts 


reviewed  in  court,  it  is  on  record  that 
some  years  since,  a  Philadelphia  cloth 
merchant  had  his  manager  (who  was 
also  his  bookkeeper)  arrested  for  em- 
bezzlement. 

The  facts  were  that  the  proprietor  had  a  certain 
line  of  imported  goods  on  which  he  had  a  fixed  per- 
centage of  profit— say  25%.  He  figured  his  profit  on 
the  cost — not  on  the  selling  price. 

The  proprietor  went  to  Europe.  When  he  came 
back  he  looked  over  the  books  and  found  that  the  sales 
during  his  absence  amounted  to  $125,000 ;  he  thought 
of  the  25%  profit  he  had  been  making  and  thought  he 
should  have  $31,250  gross  profits. 

On  referring  to  other  records  he  found  that  he  had 
but  $25,000  gross  profits;— he  figured  he  was  short 
$6,250.00  in  his  gross  profits.    He  had  ignorance 

the  manager  arrested  for  embezzlement.  Leads  to  Arrest 
The  manager  was  thrown  in  the  county  o^  an  innocent 
prison;  an  expert  accountant  was  sent 
for,  and  two  days*  work  on  the  books  failed  to  reveal 
any  irregularities.  The  expert  accountant  closely  ques- 
tioned the  merchant  as  to  how  he  came  to  charge  the 
manager  with  embezzlement. 

This  conversation  revealed  the  startling  fact  that 
it  was  on  the  matter  of  an  incorrect  conception  of  net 
profits  due  to  a  false  method  of  figuring  the  percentage 
of  profit  that  the  charge  of  embezzlement  was  laid. 

Two  hours'  attempted  explanation,  by  the  expert 
accountant,  of  the  matter  of  the  methods  of  calculating 
the  percentage  of  profit  and  an  attempt  to  show  that 
any  per  cent,  of  a  smaller  sum  is  a  smaller  per  cent. 

263 


Hard  to  Driye  a 
Point  Tlirough 
a  Thick  Skull 


THE   RIGHT   WAY   TO   FIGURE   PROFITS 

of  a  larger  sum,  or  that  25%  of  100  was  20%  of  125, 
failed  to  show  the  merchant  where  he  had  made  his 
disastrous  mistake. 

The  accountant  then  sent  for  a  box  of  matches. 
He  counted  out  one  hundred  matches.    He  then  added 

25  matches  for  the  25%  profit  that  the 

merchant  talked  about.    Then  said  he, 

"We    will    suppose    that    these     125 

matches  equal  the  amount  of  your  sales, 

$125,000.00  as  you  saw  when  you  came 

home  from  abroad.     You  believed  you  were  making 

25%  profit.    You  did  not  think  whether  this  percentage 

was  on  the  cost  or  on  the  selling  price. 

"You  possibly  thought,  in  common  with  a  great 
many  other  merchants,  who  have  given  the  matter  no 
consideration,  that  it  made  no  difference — ^but,  Sir,  you 
went  to  your  sales  account,  or  to  these  125  matches, 
you  took  therefrom  25%  of  the  amount  of  your  sales, 
$125,000,  and,  in  so  doing,  you  went  into  your  cost  614 
matches,  or  $6,250. 

"In  other  words,  you  calculated  you  had  25% — 
31l^— ($31,250.00)  on  the  125  matches  or  $125,000, 

whereas  you  had  made  a  gain  of  this 
25%  not  on  $125,000  but  on  $100,000— 
you  had  only  made  20%  on  the  $125,000 
or  $25,000,  so  the  best  thing  you  can  do 
is  to  get  this  manager  out  of  jail  and 
make  amends  to  him  as  best  you  can." 

The  merchant  saw  his  mistake  and  forthwith  se- 
cured the  release  of  the  bookkeeper  from  prison,  but 
Incidentally  paid  $2,500  damages  for  false  arrest  and 
imprisonment. 

264 


A  Costly 
Xfesson 


Prominent 

Expert  Figures 

Only  on  Selling 

Price 


THE   RIGHT   WAY   TO   FIGURE   PROFITS 

In  a  recent  series  of  articles,  ''The  New  Gospel  of 
Efficiency;'  Mr.  E.  St.  Elmo  Lewis,  advertising  man- 
ager of  Burroughs  Adding  Machine  Company,  said : 

"A  retailer  was  buying  shirts  at  $1.00  apiece.  I 
asked  him  how  much  it  cost  him  to  do  business.  He 
said  he  thought  25%  would  cover  it.  I 
asked  him  what  he  thought  he  would 
make  on  it;  he  said  he  marked  it  up  for 
20%  profit  and  his  price  was  $1.45.  His 
price  should  have  been  $1.81  to  make  a 
20%  profit." 

This  statement  from  a  prominent  official  of  a  com- 
pany making  wonderful  calculating  machines,  and 
whose  daily  work  has  to  do  with  the  various  methods 
of  correct  and  rapid  figuring,  would  surely  not  be  based 
on  any  method  except  the  right  one. 

Furthermore,  the  method  of  figuring  the  percent- 
age of  profit  on  the  selling  price  is  followed  and  in- 
sisted upon  by  thousands  of  manufacturing  and  mer- 
cantile houses  throughout  the  country,  who  only  advo- 
cate methods  which  are  absolutely  correct  and  in  ac- 
cord with  sound  business  practices. 

From  an  article  printed  some  time  ago  we  quote 
as  follows:  "You  will  find  in  every  arithmetic  such 
examples  as:  A  man  buys  a  horse  for 
$50  and  sells  him  for  $75,  what  percent- 
age of  profit  does  he  make?    Answer, 
50%."     No  more  fatal  and  misleading 
ones  were  ever  penned.    They  lead  us  to 
think  of  the  percentage  of  profit  from  an  unbusiness- 
like standpoint,  and  cause  many  business  men  to  think 

265 


"Arithmetic 

Method" 

Misleading 


.) 


t 


THE   RIGHT  WAY   TO   FIGURE   PROFITS 

they  are  making  much  larger  profits  than  they  really 
are.  This  makes  them  prodigal  of  expense  and  often 
leads  to  a  failure,  which  with  a  more  thorough  knowl- 
edge of  percentage  could  have  been  avoided. 

Suppose  a  man  to  have  in  contemplation  the  sale 
of  a  horse  on  the  basis  of  the  above  transaction.  A 
broker  approaches  him  and  offers  to  conduct  the  ne- 
gotiations.    He  asks  a  commission  of  33  1-3%. 

Now,  the  owner  of  the  horse,  having  a  profit  of 
50%  in  sight,  agrees  to  this,  and  the  broker,  having 

completed  the  transaction,   renders   a 
bill  as  follows: 

Example  of         Sold  one  horse  at $75 

Wrong  Method     Commission,  33  1-3%  25 

Due  seller $50 

The  seller's  books  would  show  a  profit  of  50%  en- 
tirely eaten  up  by  a  commission  of  33  1-3%.  Not  good 
figuring,  is  it?  Still  that  is  the  way  nine-tenths  of  our 
smaller  merchants  figure,  which  fact  often  accounts  for 
their  being  small. 

Always  figure  your  profit  on  the  sale.    Then  you 
will  be  on  the  safe  side.    To  obtain  the 
correct   percentage   of   profit   on   any 
Always  Be  on      transaction  subtract  the  cost  from  the 
saf 9  Side  ^^^^.^^  p^.^^^  ^^^  ^^^  ciphers  to  the  dif- 

ference, and  divide  by  the  selling  price. 

EXAMPLE  NO.  1. 

An  article  costs  $5  and  sells  for  $6.  What  is  the 
percentage  of  profit?    Answer,  16  2-3%. 

266 


THE   RIGHT   WAY   TO   FIGURE   PROFITS 

Process — Six  dollars  minus  $5  leaves  $1,  the  profit. 
One  dollar  divided  by  $6,  decimally,  gives  the  correct 
answer,  16  2-3%. 

This  operation  is  simple  and  a 
knowledge  of  it  being  vital  to  any  one  Figuring 

engaged  in,  or  intending  at  any  time  to 
engage  in  business,  it  should  be  care- 
fully committed  to  memory  and  constantly  borne  in 
mind. 

EXAMPLE  NO.  2. 

An  article  costs  $3.75.  What  must  it  sell  for  to 
show  a  profit  of  25%  ?    Answer,  $5. 

Process — ^First  bear  in  mind  this 
axiom :  THE  COST  PRICE  OF  AN  AR- 
TICLE   IS   NOT   A   THING   TO   BE  Ana^  of 

Figurei 
ADDED  TO.     IT  IS  A  PER  CENT. 

OF  THE  SELLING  PRICE. 

Then- 
Let  the  selling  price  equal 100% 

Deduct  profit  desired 25% 

Cost  is  75%  of  selling  price 75% 

Then  75%  is  $3.75, 1%  is  $.05, 100  per  cent,  or  the 
selling  price  is  100  times  $.05  or  $5.00.  Now,  if  you 
marked  your  goods  as  too  many  do,  by  adding  25%  to 
the  cost,  you  would  obtain  a  selling  price  of  about  $4.69, 
or  31  cents  less  than  by  the  former  method.  Which  is 
right? 

When  you  take  25%  off  the  selling  price,  figured 
according  to  the  first  rule,  you  will  still  have  your  cost 

267 


'?! 


11 


Mi  ^ 

Hi 


f 


THE  RIGHT  WAY  TO  FIGURE   PROFITS 

intact.    Take  25%  from  the  second  sum  and  see  if  the 
cost  remains. 

A  larsre  department  store  changed  hands.  The 
goods  in  stock,  to  cover  freight  and  other  charges, 

were  marked  up  10%.  They  were  to  be 
Great  Merchant  ^^^^  ^^  actual  ^cost,  but  for  convenience 
Shows  sake  were  invoiced  as  marked.    The  in- 

ignorance  ventory  having  been  completed,  nothing 

remained  to  be  done  but  take  off  the 
10%  that  had  been  added. 

The  parties  to  the  sale  accordingly  approached  the 
accountant  having  the  matter  in  charge  with  a  request 
that  this  be  done.  The  man  of  figures  set  about  making 
an  elaborate  calculation  with  this  object  in  view,  when 
he  was  questioned  by  the  seller  as  to  what  he  was 
doing. 

'Reducing  the  goods  to  cost,"  he  answered. 

'Nonsense!    Just  take  off  10%,"  said  the  seller. 

'Do  you  want  it  done  that  way?"  asked  the  ac- 
countant. 

"Why  not?"  said  the  merchant. 

"Well,  just  add  10%  to  a  dollar  and  from  the 
amount  thus  obtained  deduct  10%  and  see  if  you  have 
your  original  dollar  left." 

The  merchant  saw  the  point  at  once  and  said  no 
more  to  the  man  of  figures,  who  was  saving  him  more 
than  $3,000  which  he  would  otherwise  have  lost  on 
account  of  a  lack  of  knowledge  of  percentage. 


«i 


<r 


til 


268 


THE  RIGHT  WAY  TO  FIGURE   PROFITS 

Eight  Reasons  Why  the  Percentage  of  Profit 

Should  Be  Figured  on  the  Selling  Price 

AND  Not  on  the  Cost: 

First — Because  the  remuneration  of  salesmen  is 
figured  on  a  certain  percentage  of  the  selling  price. 

Second — Because  the  percentage  of  expense  of 
conducting  business  is  based  on  the  selling  price.  If 
you  talk  per  cent,  of  profit  on  cost  and  per  cent,  of 
expense  on  the  selling  price,  where  are  you? 

Third — Because  the  mercantile  and  other  taxes 
are  invariably  based  on  a  percentage  of  the  gross  sales. 

Fourth — Because  the  sales  totals  are  always  given 
in  books  of  record — cost  totals  are  seldom,  if  ever, 
shown. 

Fifth — Because  a  profit  must  be  provided  for  two 
items  of  capital — one  the  capital  invested  in  merchan- 
dise— ^the  other  the  capital  necessary  for  operating  ex- 
penses and  other  expenditures  not  properly  chargeable 
to  merchandise  account.  This  is  only  possible  by  fig- 
uring profit  on  the  selling  price. 

Sixth — Because  it  indicates  correctly  the  amount 
of  gross  or  net  profit  when  amount  of  sales  is  stated. 
The  percentage  of  profits  on  sales  is  indicative  of  char- 
acter of  result  of  years'  business — percentage  of  profit 
on  cost  is  not. 

Seventh — Because  allowances  in  percentage  to  cus- 
tomers are  always  from  the  selling  price. 

Eighth — Because  no  profit  is  made  until  sale  is 
actually  effected. 

269 


THE   RIGHT  WAY  TO   FIGURE   PROFITS 

The  following  table  shows  the  percentage  which 
must  be  added  to  cost  to  effect  a  given  percentage  of 
profit  on  the  selling  price: 


f. 

I 


I 


Add  to 

To  Make  on 

Add  to 

To  Make  on 

Cost 

Selling  Price 

Cost 

Selling  Price 

5% 

43/4% 

31.58 

24 

71/2 

7 

33  1-3 

26 

10 

9 

35 

26 

11.11 

10 

371/2 

27V4 

12.36 

11 

40 

28V2 

I2V2 

llVs 

42.86 

30 

13.63 

12 

45 

SI 

14.94 

13 

47 

82 

16.28 

14 

50 

33  1-3 

16  2-3 

14V4 

53.85 

35 

17.65 

15 

55 

35V2 

19.05 

16 

60 

371/2 

20.00 

16  2-3 

65 

391/2 

20.49 

17 

66  2-3 

40 

21.96 

18 

70 

41 

23.46 

19 

75 

423/4 

25 

20 

80 

44V2 

26.58 

21 

85 

46 

28.21 

22 

90 

47V2 

29.88 

23 

100 

50 

270 


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PART  IV 


COMPENSATION  OF 
SALESMEN 


'Il 


» 


COMPENSATION  OF  SALESMEN 


The  Ck>od 
Old  Times 


Many  of  us  remember  the  good  years  gone,  never 
to  return,  when  this  subject  was  one  that  did  not  cause 
us  much  anxiety,  for  we  engaged  men 
who  could  sell  a  satisfactory  amount  of 
merchandise  and  the  profits  would  take 
care  of  themselves ;  but  time  changes  all 
things,  and  truly,  time  has  changed  the 
profits  of  a  mercantile  business,  and  we  have  arrived 
at  a  day  when  small  sales  and  large  profits  would  be  a 
great  consolation;  but  instead  are  compelled  to  face 
small  profits,  no  matter  how  large  or  small  our  sales 
may  be. 

This  condition  naturally  leads  to  the  study  of  every 
expense  very  closely,  and  most  merchants,  in  looking 
over  their  annual  expense  account,  have 
discovered  that  the  largest  single  item 
of  expense  is  that  of  traveling  salesmen, 
and  it  is  the  conviction  of  many  that 
this  expense  is  not  shown  in  its  entirety 
by  the  amount  that  is  charged  to  that  account  on  the 
books,  but  that  traveling  salesmen  are  an  indirect  ex- 
pense to  every  concern  in  the  way  of  reduced  profits, 
and  that  we  have  arrived  at  a  point  when  something 
must  be  done  to  check  the  almost  lawless  competition 
which  is  bringing  about  this  reduction.    It  is  useless  to 

275 


Salesmen 

the  Oreatest 

Item  of 

Expense 


F« 


COMPENSATION  OF  SALESMEN 

consider  the  idea  of  dispensing  with  their  services  en- 
tirely, as  that  has  been  tried  and  proven  a  failure,  and 
the  only  resource  left  to  us  is  to  control  those  services 
in  such  a  manner  as  will  produce  the  best  results  for 
all  interested.  Their  salaries  must  be  paid,  and  in  ad- 
dition, railroad  fares,  hack  fares,  hotel  bills,  entertain- 
ment funds,  and  a  hundred  other  expenses. 

An  equally  important  matter  to  consider  is,  do 
they  devote  their  time  and  energy  to  our  service? 

Let  us  see  what  is  the  practice  in  this  matter. 
Some  jobbers  select  the  best  men  they  can  find,  pay 

them  salaries  they  suppose  they  are 
worth,  and  furnish  them  money  to  pay 
general  expenses,  compelling  them  to 
render  daily,  weekly  or  monthly  expense 
accounts. 

At  first  they  deem  it  unnecessary  to  itemize  these 
expense  accounts,  but  later,  as  margins  become  closer, 

their  expense  accounts  are  scrutinized 
more  closely,  and  they  ask  them  to  ren- 
der weekly — itemized  daily  expense  ac- 
counts, and  more  recently  daily  expense 
slips,  mailed  every  night,  are  demanded 
by  quite  a  few  houses. 

Examining  these  closely,  they  find  railroad  fares, 
hotel  bills,  hack  fares,  and  "last,  but  not  least,"  sun- 
dries. What  this  last  item  consists  of — ^well,  it  is  never 
known,  and  probably  never  will  be  known;  possibly 
cigars,  possibly  dinners  for  customers,  and  no  doubt 
many  items  not  essential  to  the  business. 

The  suggestion  is  also  made  that  salesmen  be  re- 

276 


COMPENSATION  OF  SALESMEN 


The  Straight 
Salary 
Method  of 
Compensating 
Salesmen 


Itemized 
I>ail7  Expense 
Accounts 


Salesmen 

Beport 

Amomit  of 

Sales  on 

Expense  Sheets 


quired  to  place  on  these  daily  expense  sheets  the  am- 
ount of  their  daily  sales,  and  also  the 
amount  of  previous  sales  for  the  current 
month.  This  serves  the  double  purpose 
of  impressing  upon  the  salesman's  mind 
just  what  results  he  is  securing  in  the 
way  of  sales,  and  also  daily  reminds  the  sales  manager 
of  the  work  of  each  salesman  as  reported  by  him.  The 
house  records,  of  course,  show  the  orders  shipped  and 
billed,  but  do  not  usually  contain  a  record  of  the  total 
amount  of  unshipped  or  future  orders. 

The  figures  given  by  the  salesman  cannot  be  exact 
but  will  be  accurate  enough  to  serve  the  purpose. 

By  this  straight  salary  system  the  salesman  is 
fully  protected  to  the  amount  of  his  salary  and  ex- 
penses, and  there  is  no  check  upon  his 
actions  If  his  sales  are  moderately  operation  of  the 
good,  he  IS  secure  in  his  position,  and  straight  Salary 
there  is  little  to  incite  him  to  intelligent  Metiiod 

and  conscientious  labor  in  the  interests 
of  his  employers. 

The  sole  interest  of  many  a  salesman  lies  in  show- 
ing a  good  volume  of  sales,  and  the  most  natural  and 
laziest  way  to  accomplish  it  is  by  con- 
vincing his  customer  that  he  is  the  man 
to  deal  with,  because  when  he  has  it 
in  his  power,  he  will  give  him  the  bene- 
fit of  all  bargains  and  will  at  all  times 
work  in  the  customer's  interest.  It  is  easy  to  see  that 
the  tendency  of  this  policy  is  a  gradual  reduction  in 
selling  prices,  reducing  the  margin  of  profit  below  that 

277 


Salesman  Often 

More  Friendly 

to  Customer 

Than  to  Honsa 


¥ 


The  Commission 
Plan 


COMPENSATION  OF  SALESMEN 

desired,  and  thus  constituting  the  indirect  expense 
which  is  spoken  of  above. 

Another  class  of  merchants  adopt  the  plan  of  pay- 
ing a  fixed  salary,  with  necessary  expenses,  and  de- 
manding in  return  for  it  a  certain  vol- 
ume of  sales,  further  agreeing,  as  an  in- 
centive, to  pay  a  certain  commission  on 
all  sales  above  that  amount.  The  prac- 
tical effect  of  this  plan  is  to  make  the 
salesman  indifferent  to  everything  but  sales.  Profits 
become  a  minor  consideration,  and  reduced  profits  en- 
ter largely  into  the  cost  to  his  employers. 

A  commission  on  the  sales  basis  has  not  been  found 
satisfactory.  The  salesmen  thus  employed  aim  to  in- 
crease their  sales  at  the  least  possible 
expense.  Volume  rather  than  net  re- 
sults is  their  aim.  Many  good  paying 
accounts  are  passed  by  because  the  cus- 
tomers are  small  buyers  and  the  expense 
of  securing  the  order  is  proportionately  great.  Usually 
such  trade  is  profitable,  and  the  resulting  mail  orders 
are  more  satisfactory  than  the  larger  trade,  which  is 
persistently  solicited.  It  is  a  demoralizer  of  prices,  and 
aims  more  towards  mere  tonnage  than  any  other  ob- 
ject. Moreover,  it  does  not  tend  to  elevate  the  standard 
of  efficiency  of  the  traveling  salesman. 

The  attention  of  the  traveling  salesman  should  be 
devoted  to  the  exploitation  and  education  of  the  trade 
to  profitable  new  goods  of  merit,  and  staple  lines  of 
goods  which  bear  a  fair  profit  to  the  house.  A  com- 
mission basis  lends  no  encouragement  to  this  what- 
ever, but  makes  the  staple  and  probably  unprofitable 

278 


Demoralizing 
Effect  of 
Commission 
Flan 


COMPENSATION  OF  SALESMEN 

items  the  most  attractive  to  salesmen,  thus  reducing 
the  business  from  a  merchandising  to  a  commodity 
basis. 

In  using  either  of  these  plans,  the  employer  is  un- 
wittingly working  directly  against  his  own  interests, 
and  when  he  awakens  to  the  fact,  must  be  anxious 
to  find  some  way  that  will  produce  better  results  and 
yet  afford  his  salesman  a  fair  reward  for  his  services. 

It  is  self  evident  that  any  plan,  to  be  successful, 
must  be  generally  employed,  and  that  the  plan  must  be 
one  that  will  make  it  to  the  interest  of 
the  salesman  to  obtain  as  large  profits 
as  are  reasonable,  proper  and  safe.  ^  ^®^  Method 

Needed 

In  the  interest  of  trade  in  gen- 
eral, there  is  submitted  to  you  a  plan 
which  is  known  to  have  been  operated  for  some  years 
past  with  beneficial  results,  and  which  is  believed  will 
be  even  more  beneficial  if  adopted  in  all 
sections  by  all  jobbers.  For  lack  of  a 
better  name,  it  may  be  called  the  "Profit 
Sharing  Plan,"  and  is  based  not  upon 
good  looks,  good  address,  or  on  the  vol- 
ume of  sales,  but  entirely  upon  the  volume  of  profits. 

This  plan  is  to  pay  the  salesman  a  certain  propor- 
tion of  his  profits  to  cover  his  salary  and  all  expenses  of 
every  manner  and  kind.    If  one  man  can 
travel  at  an  expense  of  $3.00  per  day, 
and  it  costs  another  man  $4.00,  the  man 
traveling  at  $3.00  should  have  the  bene- 
fit of  his  economical  habits.    If  one  man 
can  sell  goods  at  25%  profit,  and  another  is  a  slasher, 
and  only  makes  10%,  selling  possibly  a  few  more  goods, 

279 


A  Profit 

Sharing  Plan 

Submitted 


Salesman 

Pays  Own 

Expenses 


I 


m 


Operation  of 
Plan  Not  Costly 


COMPENSATION  OF  SALESMEN 

but  not  making  so  large  an  aggregate  profit,  the  first 
named  should  have  the  benefit  of  his  good  judgment 
and  expert  salesmanship. 

This  plan,  of  course,  makes  it  necessary  for  you 
to  figure  the  profits  on  each  and  every  sale,  and  you  say 

at  once,  "Oh,  my !  I  can  never  do  that." 
"Why !  see  what  it  would  cost,"  but  no, 
you  can  do  it,  and  the  cost  is  nominal, 
for  the  entire  profits  on  a  business  of 
over  two  millions  of  dollars  per  annum 
can  be  figured  for  less  than  three  thousand  dollars  per 
annum,  and  this  amount  will  be  paid  back  to  you  many 
times  by  increased  profits  as  soon  as  your  men  know 
you  are  figuring  their  profits,  and  instead  of  being  an 
expense  of  three  thousand  dollars,  it  will  cost  you  noth- 
ing and  your  profits  will  be  largely  increased. 

A  number  of  houses  not  doing  an  extremely  large 
business  have  questioned  the  advisability  of  calculating 
the  amount  of  gross  profits  on  individual  sales,  but 
those  who  have  given  the  system  a  trial  find  that  the 
knowledge  thus  secured  is  indispensible. 

Errors  in  pricing  are  often  found,  and,  at  times, 
serious  mistakes  involving  the  loss  of  large  amounts 

have  been  detected  and  rectified. 

This  method   of   auditing   is   also 
found  to  result  in  an  increase  of  profits. 
The  report  of  the    profits   on   certain 
classes  of  goods  is  followed  by  an  investi- 
gation which  very  often  effects  an  advance  in  price 
to  a  figure  which  affords  a  profit. 

The  net  results  of  the  work  of  traveling  salesmen 
are  quickly  ascertained  by  the  totals  given.     In  en- 

280 


Errors 
Detected  in 
Invoicing 


Fluctuation 
in  Cost 


COMPENSATION  OF  SALESMEN 

abling  the  sales  manager  to  pass  intelligently  on  the 
work  of  the  salesmen,  it  makes  possible  their  remuner- 
ation strictly  on  a  basis  of  their  net  earning  capacity, 
and,  of  course,  without  costing  the  sales  it  would  not 
be  possible  to  secure  the  necessary  figures. 

The  market  cost  at  time  of  sale  is  generally  used 
as  a  base — ^as  the  selling  price  should  always  be  based 
on  current  cost.    In  this  way  the  house 
receives  the  benefit  of  any  advance  by 
reason  of  speculative  purchases,  and  also 
suffers  the  loss  on  a  declining  market. 

The  details  of  this  plan  are  quite 
simple.    The  sales  books  generally  used  have  sufficient 
vacant  space  to  provide  for  the  column  of  figures  nec- 
essary for  the  calculation  of  the  profit, 
or  of  repricing  the  invoice  at  cost. 

This  work  can  all  be  neatly  done  in 
the  sales  book,  and  in  order  to  preserve 
secrecy  the  work  is  often  done  in  a  spe- 
cial secret  code  used  for  this  work  only.  All  that  is 
necessary  is  to  employ  one  or  more  bright  young  ladies 
or  men  (ladies  are  sometimes  preferred  for  this  work), 
and  after  an  order  has  been  filled,  figured  and  charged, 
this  young  lady  takes  it,  prices  it  over  again  with  the 
costs  and  refigures,  giving  her  the  cost  of  the  order, 
and  the  amount  of  profit  is  readily  ascertained.  Some 
houses  choose  to  figure  the  profit  on  each  item,  but 
either  method  brings  the  same  result. 

Then  in  a  separate  book,  sometimes  called  the 
"Profit  Book,"  the  totals  of  sales  and  profits  under  the 
various  salesmen's  accounts  are  tabulated.  In  this  book 

281 


DetaU  of  Work 
Not  Ck>mplez 


i 


i 


COMPENSATION  OF  SALESMEN 

each  salesman  is  given  certain  pages  and  under  his 
name  is  entered: 

Date  of  the  sale. 
Name  of  the  customer. 
Amount  of  sale. 
Profit  on  sale. 

By  properly  keeping  this  record  the  results  are 
readily  accessible,  and  day  by  day,  and  week  by  week, 
and  at  the  end  of  each  month  and  year  you  have  before 
you  the  sales  and  profits  of  each  and  every  man. 

The  custom  differs  in  regard  to  crediting  salesmen 
with  orders  received  by  mail  or  by  personal  visit  of  cus- 
tomers to  the  house.     This  matter  is 

Custom 

Bdative  to         largely    one    of    individual    judgment. 

Mail  Orders  and  Many  houses  give  their  salesmen  credit 

Manner  of  fQj.  ^H  orders  received  from  their  cus- 

Crediting  Same     .  ji  ^    xi. 

tomers  regardless  of  the  manner  in 
which  the  orders  come  to  them.  They  feel  that  if  the 
salesmen  tell  their  customers  to  hold  their  orders  until 
they  come  around,  some  salesmen  for  other  houses  will 
get  the  business  which  is  being  held. 

Other  houses  feel  that  their  reputation  and  pres- 
tige commands  a  certain  amount  of  business  and  only 
credit  orders  received  through  the  salesmen,  and  credit 
no  mail  orders,  except  when  the  customers  expressly 
request  that  the  salesmen  be  given  credit  for  the  orders. 

If  desirable,  the  personally  obtained  and  mail  or- 
der business  may  be  segregated  by  the  use  of  separate 
columns. 

The  next  matter  to  consider  is  what  shall  this  pro- 
portion be,  and  how  shall  we  arrive  at  it?    Possibly 

282 


COMPENSATION  OF  SALESMEN 


Determining 

Percentage  of 

Qross  Profit  for 

Salesmen 


you  may  have  a  competitor  who  has 
made  a  study  of  it,  and  arrived  at  the 
proportions,  and,  if  so,  and  you  have  the 
confidence  in  his  ability  to  settle  this 
matter  for  you,  and  his  honesty  in  giv- 
ing you  the  facts,  then  take  his  figures  and  start  out  at 
once.  If  not,  then  figure  the  profits  on  all  your  men 
for  a  year  and  the  result  will  give  you  the  correct  fig- 
ures to  start  in  on,  and  at  the  same  time  you  will  prob- 
ably find  that  salesman  No.  1,  who  was  supposed  to  be 
the  best  man  you  had,  if  not  the  best  in  your  city,  was 
not  making  you  any  money,  and  unless  he  can  be  en- 
gaged at  considerably  less  than  you  have  been  paying 
him,  you  are  better  without  his  services. 

In  deciding  on  these  proportions  of  profits  to  pay 
your  men,  you  must  be  fair  and  honest  to  them  as  well 
as  to  yourself.  Do  not  attempt  to  be 
smarter  than  they,  or  to  fool  them  in 
any  manner,  for,  if  you  do,  they  will  lose 
confidence  in  you,  and  naturally  lose 
confidence  in  your  business. 

The  percentage  of  the  gross  profits  paid  varies 
according  to  the  nature  of  the  business,  volume  and 
cost  of  securing  and  handling  trade  in  various  terri- 
tories. 

Neither  can  you  allow  each  the  same  proportion 
of  profits,  for  John  Smith  travels  in  a  territory  directly 
tributary  to  your  city,  his  towns  are 
close  together  and  he  can  make  two  or 
more  each  day.  He  must  work  on  a 
smaller  proportion  of  profits  than  Tom 
Jones,  who  travels  in  a  territory  afar  off , 

283 


Fairness  in 

Operating 

System 


City  and 

Comitry  ShoTdd 

Be  on  Different 

.  Bases 


'i|* 


I      I 


k' 


h 


li 


A  (Concrete 
Case  Sbowing 
Besnlts 


COMPENSATION  OF  SALESMEN 

and  perhaps,  naturally,  tributary  to  some  other  city. 
Tom  cannot  make  more  than  one  town  each  day,  or  per- 
haps two  in  three  days,  his  railroad  fare  is  more,  etc., 
etc.,  so  that  while  John  Smith  can  make  a  good  thing  on 
25  per  cent,  of  his  profits,  Tom  Jones  should  have  30 
or  35  per  cent,  to  make  a  satisfactory  compensation. 
As  an  example  of  the  system: 
If  a  salesman  visiting  country  trade  sold  $40,000 
per  annum  at  an  average  profit  of  16  per  cent,  or  $6,- 

400,and  he  received  40  per  cent  of  the 
gross  profits,  he  would  get  as  his  share 
$2,560,  and  out  of  this  he  would  pay 
his  traveling  expenses,  which  would  av- 
erage perhaps  $1,000,  leaving  $1,560  for 
his  own  remuneration. 

In  presenting  this  profit  plan  to  your  salesman,  he 
will  probably  say  at  once,  "Well,  I  don't  know  about 
that,  I  have  got  to  make  about  so  much  money,  and  I 
don't  know  whether  I  can  do  it  or  not,"  so  you  will 
undoubtedly  be  compelled  to  guarantee  him  that  it  will 
net  him  a  certain  amount  the  first  year,  but  have  it 
understood  that  this  guarantee  is  only  for  one  year. 
This  being  so  very  fair,  he  cannot  hesitate  to  accept 
the  proposition,  and  time  will  settle  the  future. 

When  a  special  man  is  engaged  in  working  up 
business  with  architects,  builders  and  those  placing 

contracts  of  various  kinds,  or  large 
corporations  who  are  visited  by  sales- 
men, but  generally  place  orders  by  mail, 
it  is  an  open  question  as  to  whether  or 
not  they  should  be  on  a  straight  salary 
basis.  Where  competitive  bids  are  made,  the  business 
of  securing  the  order  passes  more  directly  into  the 

284 


Special 
Conditions 


Salaries  of 
Salesmen 

Depend 
Entirely  on 

Sesnlts 


COMPENSATION  OF  SALESMEN 

hands  of  the  house,  and,  in  many  cases,  the  salesman 
does  not  perform  the  vital  part  of  the  work.  This  is  a 
matter  which  can  readily  be  adjusted  where  it  comes 
up,  and  should  by  no  means  interfere  with  the  opera- 
tion of  the  system. 

Compensation  under  this  system  depending  en- 
tirely on  merit  and  net  results,  when  a  salesman  at  the 
end  of  the  year  makes  his  pilgrimage 
to  your  office  and  tells  you  he  is  worth 
$200  more,  you  show  him  these  figures 
and  ask  him  why  he  is  worth  it. 

Or  if  you  have  been  paying  him  in 
proportion  to  his  profits  your  reply  is:  "Yes,  you 
ought  to  make  more  money,  and  if  you  will  just  in- 
crease your  profits  $1,000,  you  will  get  it."  What  will 
be  his  reply?  Simply:  "That's  right;  I'll  get  there 
this  year  sure,"  and  he  does  get  there. 

The  salesman's  salary  is  automatically  increased 
in  months  of  good  results  and  likewise  reduced  in  poor 
months.  The  humiliating  duty  of  reducing  salaries 
is  dispensed  with,  as  the  amount  of  remuneration  liea 
largely  on  the  personal  work  of  the  salesman  involved. 
Many  houses  report  that  since  they  have  adopted  this 
plan,  arguments  with  salesmen  on  this  point  have  been 
a  thing  of  the  past. 

Being  a  partner,  at  least  as  far  as  the  customers 
on  whom  they  call  are  concerned,  the  salesmen  are 
liable  to  have  a  greater  interest  in  the 
business  and  to  more  watchfully  guard 
the  interests  of  the  house. 

This  profit  sharing  system  has  been 
found  to  be  most  potent  in  helping  to 

285 


Essentially  a 
Partnersliip 


'  I 


The  Custom  in 
Begard  to 
Bad  Debts 


COMPENSATION  OF  SALESMEN 

maintain  established  prices.  There  is  no  incentive  like 
it.  On  a  salary  plan  the  entire  body  of  salesmen  is  at 
war  against  firm  "no  deviation"  prices;  on  a  profit 
sharing  plan  the  entire  spirit  is  changed  and  stands  for 
absolute  maintenance  of  established  prices  which  is 
sure  to  result  in  great  benefits  to  all  parties  con- 
cerned. 

Under  this  plan  where  certain  bills  are  not  paid 
it  is  customary  to  deduct  the  salesmen's  share  of  the 

profit  already  paid  from  his  account 
when  the  next  settlement  is  made.  In 
this  way  the  salesman  bears  his  share 
of  the  loss  of  profits,  which  interests 
him  directly  in  maintaining  good  credit 
conditions  with  his  trade. 

Thus  the  house  loses  the  cost  of  the  goods  and  its 
share  of  the  profit,  while  the  salesman  loses  his  share 
of  the  profit  which  would  have  been  made  if  the  ac- 
count would  have  been  a  good  one. 

SPECIMEN  OF  FORM  OF  CONTRACT  BETWEEN 

WHOLESALE     HOUSE    AND    SALESMAN 

WHOSE  COMPENSATION  IS  BASED 

ON  THE  PROFIT  SHARING 

SYSTEM. 

Memorandum  of  agreement  entered  into  this 
10th  day  of  August,  1912,  between  the  Enterprise 
Wholesale  Hardware  Co,,  of  the  City  of  Philadelphia, 
Pa.,  party  of  the  first  paH,  and  John  Traveler,  of  the 
City  of  Altoona,  Pa.,  party  of  the  second  part. 

286 


COMPENSATION  OF  SALESMEN 

The  Enterprise  Wholesale  Hardware  Co.  agrees 
to  employ  the  said  John  Traveler  beginning  August  12, 
1912,  and  the  said  John  Tifaveler  accepts  such  employ- 
ment hereby. 

CoNProENTiAL  Contract. 

The  terms  of  this  contract  shall  be  kept  strictly 
confidential  and  shall  not  be  divulged  to  any  one — 
either  an  employee,  traveling  salesman  of  our  Company 
or  to  any  competitor  or  outside  party.  Any  failure  to 
respect  the  confidential  nature  of  this  contract  on  the 
part  of  the  party  of  the  second  part  shall  immediately 
operate  as  cancellation  of  this  contract. 

Party  of  the  second  part  is  to  devote  his  entire 
services  to  the  party  of  the  first  part  and  under  no 
circumstances  is  the  party  of  the  second  part  to  seU 
goods  or  do  work  for  any  other  person  or  persons, 
firm  or  corporation.  The  party  of  the  second  part  is 
to  give  his  best  efforts  at  all  times  and  cover  such 
territory  as  the  party  of  the  first  part  directs. 

Compensation. 

Party  of  the  first  part  will  pay  party  of  the  second 
part  30%  of  his  gross  profits  as  per  computation  by 
party  of  the  first  part,  same  to  cover  salary  and  ex- 
penses, it  being  expressly  understood  that  all  orders 
shall  be  subject  to  the  approval  of  the  party  of  the 
first  part  and  compensation  paid  only  on  such  orders 
as  are  duly  accepted  and  filled  by  the  party  of  the  first 
part. 

There  shall  be  first  deducted  the  share  of  profits 
which  have  been  paid  on  any  bad  debt  (as  per  clause 

287 


f 


V 


COMPENSATION  OF  SALESMEN 

headed  Bad  Debts)  that  may  have  been  sold  by  the 
paHy  of  the  second  part,  or  mail  orders  from  such 
delinquent  debtor  which  have  been  credited  to  said 
second  party. 

Payments. 

Party  of  the  first  part  will  allow  party  of  the 
second  part  advance  payments  at  the  rate  of  $125.00 
per  month  at  the  end  of  each  calendar  month  on  ac 
count  of  the  earnings  of  the  party  of  the  second  part 
up  to  the  time  such  payment  is  made,  final  settlement 
to  be  made  between  December  Ust,  1912,  and  March 
1st,  1913,  in  case  there  is  a  balance  due  the  party  of 
the  second  part. 

Guarantee. 

The  party  of  the  first  part  guarantees  that  this 
contract  in  its  entirety  will  pay  the  paHy  of  the  second 
part  only  the  amount  advanced  as  per  chiuse  entitled 
Payments^i.  e.,  to  say,  party  of  the  first  part  guar- 
antees  this  contract  only  to  the  extent  of  making  the 
payments  to  the  party  of  the  second  part  in  its  entirety 
in  the  amount  advanced  as  per  clause  entitled  Pay- 
ments" 

Mail  Orders. 

(See  foUowing  optional  clauses  to  be  used  as 

agreed  upon.) 

Form  No.  1. 

The  account  of  the  party  of  the  second  part  is  i«>t  *<>  be 
credited  with  Mail  Orders  nor  *^ouse  orders"  -ecewed^^^^^^^ 
party  of  the  first  part  from  customers  or  from  other  merchants 
in  the  territory  of  the  party  of  the  second  part. 

288 


COMPENSATION  OF  SALESMEN 

Form  No.  2. 
(Or  this  Mail  Order  Clause  may  be  made  to  read)  : 

The  sales  by  the  party  of  the  second  part  will  be  credited 
with  each  mail  order  on  which  the  customer  so  makes  a  request, 
and  the  said  party  of  the  second  part  shall  receive  . .  %  of  the 
profits  on  same,  the  same  as  if  the  order  had  been  taken  by  said 
party  of  the  second  part  in  person. 

Form  No.  3. 

(Or  other  houses  who  feel  that  it  is  best  to  credit 
all  mail  orders  make  this  clause  read) : 

The  sales  by  the  party  of  the  second  part  will  be  credited 
with  every  mail  order  received  from  those  merchants  in  his  ter- 
ritory to  whom  the  party  of  the  second  part  has  made  a  sale,  and 
said  party  of  the  second  part  shall  receive  . .  %  of  the  profit 
on  the  same,  the  same  as  if  orders  had  been  taken  by  the  said 
party  of  the  second  part  in  person. 

Advance  for  Expense  Money. 

Party  of  the  first  part  will  guarantee  to  advance 
to  the  party  of  the  second  part  $60.00  semi-monthly  to 
cover  expenses,  etc.,  with  the  understanding  that  the 
party  of  the  second  part  will  mail  daily  report  of  ex- 
penditures and  make  final  report  and  statement  on  the 
last  day  of  each  month  for  the  expenses  of  the  month. 

Bad  Debts. 

Referring  to  the  item  of  Bad  Debts  in  clause 
headed  "Compensation,"  the  party  of  the  first  part  is 
to  deduct  from  the  amount  due  the  party  of  the  second 
part  at  the  end  of  the  year  or  at  the  termination  of 
this  contract  or  at  any  time  a  bad  debt  may  develop, 

289 


COMPENSATION  OF  SALESMEN 

the  amount  of  gross  profit  paid  the  party  of  the  second 
part  on  all  bad  accounts  sold  by  the  said  party.    For 
instance,  should  one  of  the  customers  of  the  party  of 
the  second  part  fail  or  become  in  any  way  involved 
80  that  the  account  would  be  uncollectible  owing  party 
of  the  first  part  $100.00,  and  the  average  gross  profit 
on  the  account  was  20%,  or  $20.00,  the  account  of  the 
party  of  the  second  part  would  be  charged  with  $6.00 
and  party  of  the  first  part  would  stand  the  loss  of 
$94.00.    //  at  the  termination  of  this  contract,  party 
of  the  first  part  has  accounts  sold  by  the  party  of  the 
second  part  that  are  doubtful  of  collection,  said  party 
of  the  first  part  has  the  privilege  of  reserving  an  ade- 
quate part  of  the  sum  that  may  be  due  the  party  of 
the  second  part  to  protect  said  party  of  the  first  part 
against  the  proportion  of  the  loss  as  set  forth  in  this 
clause  entitled  Bad  Debts  which  would  otherwise  be 
retained  by  the  party  of  the  second  part.    Party  of  the 
first  part,  however,  agrees  to  ascertain  the  true  condi- 
tion of  any  such  account  within  a  reasonable  time — 
not  longer  than  four  months — after  the  expiration  of 
the  contract. 

Termination. 

This  contract  may  be  terminated  at  any  time  by 
either  party,  by  giving  the  other  party  30  days*  notice. 
If,  however,  it  is  desired  by  the  Enterprise  Wholesale 
Hardware  Co.,  it  may  assign  to  said  party  of  the  second 
part  such  duties  in  the  house  as  it  may  desire  to  do 
for  the  said  period  of  thirty  days,  and  pay  said  party 
of  the  second  part  the  sum  of  $125.00  in  full  com- 
pensation for  all  services  and  expenses  incurred  during 

290 


COMPENSATION  OF  SALESMEN 

period  of  30  days  in  lieu  of  amount  named  in  para- 
graph headed  Compensation. 

(Signed)     Enterprise  Wholesale  Hardware  Co. 
John  Traveler. 

Now  this  system  has  been  fully  outlined,  but  we 
want  to  mention  to  you  some  of  the  objections  to  put- 
ting such  a  plan  into  effect  just  as  it  has  been  herein 
given,  and  to  suggest  some  means  of  overcoming  the 
objections  so  that  the  system  will  be  altogether  satis- 
factory and  acceptable. 

Some  objections  which  have  been  raised  are: 

That  it  is  claimed  that  under  this  contract  the 
salesman  would  know  the  cost  of  goods,  and  that  this 
would  cause  the  salesman  to  have  information  which 
should  not  properly  be  his. 

That  it  opens  a  way  to  a  constant  disagreement 
with  the  salesman  in  that  if  you  give  them  the  cost 
truthfully  they  may  go  out  and  find  some  other  sales- 
man who  has  a  lower  cost,  who  will  imagine  that  the 
house  is  not  treating  him  honestly  and  fairly. 

That  it  makes  every  purchasing  agreement 
public  property,  if  you  let  the  salesman  know  of  it,  and 
he  will  probably  know  of  it. 

That  if  the  salesman  disputes  your  figures,  he 
may  seriously  embarrass  you  by  bringing  you  into 
Court  and  forcing  you  to  show  all  the  private  and  con- 
fidential figures  of  your  business. 

These  objections  are  within  the  realm  of  possi- 
bilities, but  we  must  say  that  they  have  not  developed 
in  the  practical  operation  of  the  system,  but  rather 
with  a  discussion  of  the  system  by  business  men. 

291 


I 


COMPENSATION  OF  SALESMEN 

As  a  means,  therefore,  of  overcoming  the  objec- 
tions, the  suggestion  is  offered  that  the  Profit  Sharing 
Plan  may  be  operated  by  the  house,  but  the  salesman 
should  not  be  made  a  party  to  a  contract  which  will 
involve  the  division  of  any  given  percentage  of  the 
profit. 

Rather,  a  contract  should  be  made  based  on  a 
guaranteed  salary  and  a  statement  by  the  house  that 
very  careful  attention  will  be  given  to  the  matter  of 
profits  on  the  sales  affected,  and  that  if  the  salesman's 
results  show  a  satisfactory  gross  profit  to  the  concern, 
he  will  receive  a  bonus. 

The  salesman  can  be  given  a  guaranteed  salary 
or  drawing  account  month  by  month  in  the  regular 

way. 

This  plan  is  merely  suggested  to  overcome  objec- 
tions suggested.  Under  it,  the  firm  can  feel  free  to 
operate  the  Profit  Sharing  Plan  with  their  salesman 
and  to  determine  his  remuneration  on  that  basis. 

They  will,  further,  not  be  under  the  necessity  of 
making  the  cost  known  to  the  salesman,  nor  could  the 
salesman  take  the  house  into  court,  because  there  would 
be  no  contract  calling  for  a  fixed  percentage  on  the 
gross  profit  as  a  basis  of  compensation. 

This  system  of  compensating  salesmen  by  giving 
them  a  percentage  of  the  gross  profit  on  all  goods 
which  they  sell,  is  operating  satisfactorily  with  hun- 
dreds of  large  wholesale  houses,  and  it  has  met  with 
the  approval  of  successful  salesmen  throughout  the 
country. 

In  discussing  the  plan  some  men  have  ob- 
jected that  under  its  provisions  salesmen  would  in 

292 


COMPENSATION  OF  SALESMEN 

many  cases  know  the  cost  of  goods,  and  that  they  are 
not  entitled  to  this  information. 

Now  it  is  not  necessary  under  this  contract  to 
make  known  to  the  salesman  the  cost  of  goods,  unless 
one  desires  to  do  so.  The  house  agrees  to  figure  the 
profits  based  upon  their  cost.  That  they  should  do  so 
honestly  and  fairly  to  both  is  taken  for  granted.  For 
honesty  is  necessary  in  all  things,  and  no  business 
house  can  succeed  which  for  a  moment  takes  advant- 
age of  its  employees,  whose  contracts  were  based  on 
profits. 

If  it  is  necessary  to  go  into  this  matter  of  who 
shall  be  the  arbiter  of  the  correctness  of  the  figures, 
it  would  appear  that  the  house  should  settle  this  ques- 
tion. 

In  many  houses  profits  are  figured  by  trained  em- 
ployees who  figure  with  precision  and  care  and  without 
a  thought  of  anything  other  than  absolute  correctness. 

Another  Form  of  the  Profit  Sharing  Plan. 

Basing  other  plans  upon  the  same  general  prin- 
ciples and  advantages  as  those  noted  in  the  foregoing 
plan,  a  large  wholesale  house  recently  formulated  a 
plan  for  compensating  salesmen  which  has  for  its 
main  feature,  the  securing  of  a  fixed  base  minimum 
percentage  of  profit.  The  general  manager  or  sales 
manager  of  the  jobbing  house  or  members  of  the  firm 
or  officers  of  the  company  decide  upon  this  base  per- 
centage of  profit  to  be  used  as  a  minimum  in  making 
salesmen's  contracts  at  the  beginning  of  the  year. 

293 


'  I 


COMPENSATION  OF  SALESMEN 

To  arrive  at  this  base  percentage  of  profit  the  cost 
of  doing  business  is  accurately  ascertained,  and  from 
2  to  5%  is  added  to  pay  a  profit  to  the  business  and 
to  cover  risks  attendant  upon  the  enterprise.  Thus  in 
many  wholesale  houses  the  base  percentage  of  profit 
is  from  16  to  22%.  The  salesman  must  average 
this  percentage  of  profit  before  he  is  entitled  to  a  bonus 
under  the  contract,  which  is  as  follows: 

Sample  of  contract  for  compensating  sales- 
men REQUIRING  THE  MAINTENANCE  OF  A  MINIMUM 
AVERAGE  PERCENTAGE  OF  PROFIT  AND  MINIMUM  GROSS 
SALES  IN  ORDER  TO  OBTAIN  BONUS. 

We  will  give  you  a  salary  during  1911  of  $125.00 
per  month.  If  the  shipments  made  during  1911  on 
orders  received  from  our  customers  upon  whom  you 
call  as  per  list  on  file  in  our  office,  exceed  $70,000,  we 
will  pay  you  one  per  cent,  on  the  excess,  provided  the 
percentage  of  profit  on  shipments  is  equal  to  or  above 
the  base  percentage  of  profit. 

We  have  adopted  a  base  percentage  of  profit,  and 
if  the  percentage  of  profit  on  shipments  made  during 
1911  on  orders  from  said  customers  exceed  this  base, 
and  provided  your  sales  are  at  least  $70,000,  we  will 
pay  you  in  addition  25%  of  the  excess  profit  on  said 
shipments.  In  estimating  said  "excess  profits''  on  said 
shipments,  bad  debts  shall  not  be  taken  into  account. 
If  said  shipments  do  not  amount  to  $70,000,  there  ivill 
be  no  bonus  due  you  for  excess  profit. 

Upon  settlement  of  bonus  or  premium  accounts 
upon  the  basis  above,  we  will  allow  you  a  loss  of  %  of 

294 


COMPENSATION  OF  SALESMEN 

Ifofor  bad  debts  which  are  charged  off  at  the  end  of 
the  year  for  goods  shipped  during  the  year;  but  should 
shipments  show  a  greater  loss  than  %  of  1%»  2/^^  ^^^ 
to  stand  25%  of  the  loss  above  the  %  of  1%,  so  far  as 
your  bonus  or  premium  account  will  extend.  This  loss 
is  to  be  deducted  from  any  premium  or  bonuses  which 
you  make  above  your  salary,  but  will  not  be  deducted 
from  your  salary,  nor  carried  over  into  any  subsequent 
year. 

Your  expenses  for  the  year  are  not  to  exceed 
$1,500.00  in  amount.  If  they  do,  the  excess  sum  is  to 
be  deducted  from  your  premium  or  bonus  account. 

These  bonuses  or  premiums  are  to  be  paid  by  ub 
during  the  month  of  January,  1912,  and  are  to  be  based 
solely  upon  the  statistics  furnished  by  our  Statistical 
Department  and  said  statistics  shall  not  be  subject  to 
revision  or  readjustment. 

We  reserve  the  right  at  any  time  to  change  your 
territory  or  list  of  customers  when  it  seems  to  be  to 
the  best  interests  of  the  company  to  do  so.  We  also 
reserve  the  privilege  of  dispensing  with  your  services 
at  any  time  should  they  not  be  satisfactory  to  us. 
Should  we  do  this,  you  will  not  be  entitled  to  any  bonus 
or  commission  under  this  arrangement,  but  shall  re- 
ceive salary  only,  apportioned  to  the  date  of  our  notice 
of  dismissal. 

Should  you  elect  to  leave  our  employ  during  1911, 
there  will  be  no  bonus  or  commission  due  you,  and  we 
shall  owe  you  salary  only,  apportioned  to  the  date  of 
your  resignation. 

Your  account  is  not  to  be  credited  with  goods 

295 


'I 


1> 


If 


COMPENSATION  OF  SALESMEN 

shipped  on  orders  for  use  in  government  work  unless 
specially  arranged  in  advance. 

Enterprise  Wholesale  Hardware  Co. 

/  have  read  the  above  carefully  and  am  entirely 
satisfied  with  the  provisions  and  accept  the  same  for 
the  year  1911. 

John  Traveler. 

As  an  example  of  the  operation  of  the  plan,  for 
instance,  suppose  a  man's  minimum  sales  limit  were 
$70,000  and  he  sold  $90,000  and  his  percentage  of 
profits  was  2%  above  the  base.  The  bonus  he  would 
get  would  be  as  follows : 

1%  of  $20,000 $200.00 

25%  of  2%  is  V2  of  1%  on  $90,000 450.00 

Making  total  bonus  of $650.00 

Some  of  the  advantages  of  this  plan  are :  Sales- 
men endeavor  to  sell  profitable  goods,  thereby  main- 
taining high  average  profit  instead  of  working  for 
volume;  salesmen  are  interested  in  minimizing  the  loss 
from  bad  accounts  and  unfair  allowances;  maximum 
traveling  expenses  are  fixed,  and  loyal  and  efficient 
service  is  secured  through  interesting  the  salesmen 
directly  in  the  net  results  of  their  business. 

It  has  been  said  by  Frederick  Winslow  Taylor, 
author  of  the  well-known  work  entitled  "The  Princi- 
ples of  Scientific  Management" : 

"The  principal  object  of  management  should  be  to 
secure  the  maximum  prosperity  for  the  employer, 
coupled  with  the  maximum  prosperity  for  employee. 

296 


I 


COMPENSATION  OF  SALESMEN 

"The  words  'maximum  prosperity'  are  used  in 
their  broad  sense  to  mean  not  only  large  dividends  for 
the  company  or  owner,  but  the  development  of  every 
branch  of  the  business  to  its  highest  state  of  excellence, 
so  that  the  prosperity  may  be  permanent. 

"In  the  same  way  the  maximum  prosperity  for 
each  employee  means  not  only  higher  wages  than  are 
usually  received  by  himself  or  his  class,  but,  of  more 
importance  still,  it  also  means  the  development  of  each 
man  to  his  said  maximum  efficiency,  so  that  he  may  be 
able  to  do,  generally  speaking,  the  highest  grade  of 
work  for  which  his  natural  abilities  fit  him,  and  it 
further  means  giving  him,  when  possible,  this  class  of 
work  to  do." 

The  operation  of  a  plan  calling  for  a  share  of 
profits  to  the  salesman  should  certainly  tend  to  de- 
velop an  increase  in  the  volume  of  business,  an  in- 
crease in  the  volume  of  profits  and  a  decrease  in  the 
expense  account.  The  development  of  the  employee 
into  a  business  man  of  the  highest  quality  should, 
therefore,  be  a  natural  development  of  his  employment 
on  a  profit  sharing  basis. 

Another  very  important  factor  in  the  figuring  of 
profits  is  that  you  know  just  exactly  how  your  business 
is  running,  and,  if  during  the  first  three 
or  four  months  of  the  year,  you  find      The  Beneficial 
you  are  not  making  as  much  money  as  Results  of 

you  ought,  you  immediately  begin  to   ^e^'^s  Profit 
study  what  course  to  follow,  and  have 
eight  or  nine  months  left  to  study  what  steps  to  take 
to  correct  any  existing  evils,  while  if  you  do  not 
figure  profits,  you  cannot  tell  until  the  year  is  over 

297 


fill 


li 


f 


COMPENSATION  OF  SALESMEN 

whether  you  are  making  money  or  not,  and  then,  after 
taking  your  annual  inventory,  if  the  year  has  been 
unsatisfactory,  you  can  only  regret  it,  for  the  year  is 
gone,  and  no  time  left  to  correct  these  evils. 

To  conclude,  the  opinion  is  ventured  that  a  con- 
cern doing  a  jobbing  business,  that  expects  to  continue 

in  the  business,  will  be  compelled  to 
A  Chart  and  ^^re  their  daily  profits,  or  eventually 
Compass  to  the  go  out  of  business,  for  there  are  so 
Business  Man      many  unprofitable  lines  in  the  business 

that  the  concerns  who  do  figure  their 
profits  and  pay  their  men  accordingly,  will  work  and 
sell  the  profitable  goods,  and  leave  for  you  the  staples 
that  foot  up  large  sales  with  no  profits. 

Furthermore,  the  plan  advocated  above  has  been 
tried  and  found  successful.     Salesmen  have  doubled 

their  salaries  the  very  first  year,  and 
you  are  glad  to  have  them  do  so,  for 
every  time  they  make  $100.00  more  for 
themselves,  they  are  making  $200.00 
to  $300.00  more  for  you,  so  the  more 
they  make  the  better  you  like  it 


Popular   With 

Successful 

Salesmen 


298 


PART  V 


THE  MIDDLE-MAN 
AS  AN  ECONOMICAL  MEDIUM  OF 

DISTRIBUTION 


rf 


HI' 


I 


THE  MIDDLE-MAN  AS  AN  ECONOMICAL 
MEDIUM  OF  DISTRIBUTION 


Onz  Market  » 

Complex  One 


The  American  market  is  probably  the  most  com- 
plex in  the  world,  occupying,  as  it  does,  the  largest 
economicaUy  high-grade  area  under  one 
political  control  with  uniform  trade  cus- 
toms, laws  and  language. 

This  has  compeUed  an  extensive  in- 
ternal exchange  and  made  necessary 
comprehensive    methods    of    performing    mercantile 
functions  which  have  been  provided  by  many  master 
minds  in  commercial  spheres. 

During  the  period  of  time  up  to  the  great  financial 
depression  of  1873  the  demand  for  goods  was  largely 
supplied  by  importation  from  foreign  countries. 

The  merchant  of  those  days  was  an  importer  of 
goods  made  in  Europe  and  other  parts  of  the  world, 
distributing  the  goods  to  consumers  located  thousands 
of  miles  from  the  point  of  manufacture,  as  there  had 
yet  been  no  development  of  manufactures  in  this  coun- 
try. 

During  the  past  forty  years  the  manufacturers  of 
the  country  have  made  great  progress,  and  in  this  they 
have  enjoyed  many  advantages  not  to 
be  obtained  elsewhere. 

They  have  had  the  benefit  of  an  en- 
tire absence  of  prejudice  against  ma- 
chinery; a  protective  tariff  and  patent 

301 


Manufactnren 

Have  Bnjoyed 

Advantages 

in  the 

United  States 


II 


111 


(I: 


Economy  in 

Iftanufactnring 

Processes 


THE   MIDDLE-MAN  AS  AN  ECONOMICAL 

legislation,  and  unusual  mechanical  ability  of  the  peo- 
ple as  well  as  great  mobility  of  labor. 

The  tendency  to  progress  and  economize  in  meth- 
ods of  manufacture  led  the  manufacturers  to  provide 

simultaneously  for  all  stages  of  produc- 
tion, taking  into  the  factory  the  raw 
material  in  its  first  state  and  turning 
out  the  completely  finished  material 
ready  for  the  consumer,  this  method 
being  in  direct  contrast  to  former  practices. 

Distribution. 
In  considering  the  attitude  of  the  manufacturer 
toward  the  market  relative  to  the  sale  of  his  product, 
we  find  considerable  difference  in  the  poHcy  pursued 

by  many  concerns. 

Formerly  the  manufacturer  confined  his  activities 
to  manufacturing  only,  but  now  he  has  felt  it  neces- 
sary to  create  a  market  for  his  goods  by 
publicity  and  also  to  perfect  arrange- 
ments for  their  distribution. 

Some  manufacturers  prefer  to  un- 
dertake the  distribution  of  their  goods 
direct  to  the  small  trade  and  to  the  consumer.    This  is 
sometimes  done  through  direct  salesmen  or  a  mail- 
order system,  and  involves  a  vast  amount  of  detail  at 

the  factory  or  central  office. 

Thousands  of  small  accounts,  with 
infrequent  buyers,  must  be  kept.  If 
personal  visits  are  made  by  representa- 
tives who  sell  the  line  of  goods  manu- 
factured, the  traveling  expense  and  sal- 

302 


Various  Modes 
of   I>istribntion 


Mannfactureis 
to  Consumers 
Direct 


Direct  Buying 

Induces 

Overloading 

Buyer 


MEDIUM  OF  DISTRIBUTION 

ary  of  such  direct  representatives  is  quite  heavy, 
often  averaging  from  15  per  cent,  to  20  per  cent, 
on  the  sales  effected.  This  direct  method  of  selling 
is  only  possible  where  the  individual  sales  are  large, 
as  manufacturers  of  small  goods  could  not  afford  such 

a  heavy  expense. 

From  the  standpoint  of  the  buyers  this  method 
has  many  disadvantages.  It  either  involves  overbuy- 
ing and  an  excessive  investment  of 
money  at  certain  periods  of  the  year, 
or  a  great  number  of  small  shipments 
extending  throughout  the  year,  and  in- 
volving delays  and  heavy  freight 
charges  from  distant  and  widely  separated  factories. 

Another  method  of  direct  contact  is  pursued  by 
some  in  the  establishment  of  distributing  depots  at 
central  points.     This  method  involves 
all  the  expense  of  a  regular  wholesale    Brancii  Factory 
business,  and  the  advantage  sought  is  stores  or 

thus  lost,  as  the    regular    distributive  Warehouse, 

agencies  would  be  able  to  undersell  in 
many  cases,  for  the  expense  would  be  divided  among 
hundreds  of  other  lines  of  goods,  lessening  the  expense 
of  selling  all  or  any  one  manufacturer's  product. 

The  greatest  invasion  of  the  mercantile  field  in  the 
distribution  and  sale  of  manufactured  products  occurs 
under  the  influence  of  strong  and  some- 
times vindictive  competition  between 
manufacturers.  This  condition  is  quite 
demoralizing,  and  after  it  has  spent  its 
force  the  warring  factions  often  get  to- 
gether and  form  a  "pool"  or  enter  into  "gentlemen's 

303 


]i£anuf  acturen ' 

Unfair 

Competition 

Demoralizes 

Conditions 


It  I 


I  i 


I 


I 


4 


Advertising 
Has  Changed 
Conditions 


THE  MIDDLE-MAN  AS  AN  ECONOMICAL 

agreements,  controlling  competition  and  substituting 
therefore  co-operation,  emulation,  and  comparison  of 
records,  frequently  resulting  in  a  higher  scale  of  prices 
and  improved  conditions  surrounding  the  sale  of  their 

product. 

Advertising  and  general  publicity  work  have  been 
great  factors  in  promoting  closer  relations  between 

manufacturers  and  consumers  and  have 
materially  changed  the  complexion  of 
trade.    The  manufacturer  feels  that  the 
distribution  of  his  product  is  assured, 
regardless  of  the  will  of  the  dealer. 
Experience,  however,  has  served  well  to  demon- 
strate  the  wisdom  of  employing  the  regularly  estab- 
lished agencies  of  distribution,  and  the 
large  majority  of  manufacturers  recog- 
nize this  fact. 

The  wholesaler  or  jobber  offers  to 
the  manufacturer  a  very  satisfactory 
method  of  distribution,  and  is  of  advantage  to  both  the 
manufacturer  and  the  trade. 

First  it  is  necessary  to  know  what  constitutes  a 
jobber.    This  is  difficult  to  determine  by  a  fixed  rule  or 

definition  which  would  invariably  apply. 
Generally  speaking,  the  jobber  is  found 
in  large  cities  recognized  as  distributing 
centers,  possessing  ample  transporta- 
tion facilities  by  rail  or  water.    It  is  es- 
sential that  a  large  and  well-assorted  stock  be  carried, 
and  that  a  corps  of  traveling  salesmen  be  regularly 
employed  in  visiting  the  retail  trade. 

If  these  qualifications  are  present,  and  the  house 

304 


Begnlar 
Avenues  of 
Distribution 
Are  Best 


Wliat  is  a 
Jobber? 


Tbe  Psaedo 
Jobber 


MEDIUM  OF  DISTRIBUTION 

exercises  the  legitimate  functions  of  a  distributor  at 
wholesale,  it  should  be  classed  as  a  jobbing  house,  and 
enjoy  all  rights  and  privileges  as  such. 

The  one  who  is  not  considered  as  a  jobber,  how- 
ever, is  he  who  buys  far  in  excess  of  his  legitimate  re- 
quirements, for  the  purpose  of  inducing  some  manu- 
facturer to  extend  to  him  his  best  jobbers*  prices,  when 
the  goods  are  merely  for  local  retail  business. 

If  such  a  dealer  finds  it  necessary  to  carry  his  de- 
ception still  further,  he  often  makes  a  pretense  of  be- 
ing a  legitimate  wholesaler  by  sending 
bookkeepers  or  clerks  as  traveling  sales- 
men to  see  some  trade,  to  further  bear 
out  his  false  claims.  After  securing 
goods  at  jobbers'  prices  in  such  a  man- 
ner, however,  it  is  often  necessary  to  dispose  of  the 
surplus  quickly  to  the  customers  of  legitimate  jobbers, 
and  this  is  often  done  at  or  near  cost,  to  the  general 
demoralization  of  prices  on  the  line  purchased. 

Jobbing  schedules  should  not  be  extended  to  syn- 
dicates of  small  dealers,  buying  either  as  a  syndi- 
cate or  through  some  one  dealer.  Such  arrange- 
ments are  detrimental  to  other  dealers  who  are  not 
parties  to  such  a  combine  and  an  unfair  advantage  is 
thus  secured,  harming  the  legitimate  jobbers  as  weD 
as  the  outside  dealer. 

It  is  the  purpose  of  many  trade  associations  to  col- 
lect and  keep  on  file  in  their  offices  full  and  complete 
information  regarding  all  houses  doing 
or  claiming  to  do  a  legitimate  jobbing 
business,  and  this  information  is  given 
free  of  charge  at  all  times,  to  those  man- 

305 


Classlfled 

Lists  of 

Buyers 


II 


Tbe  Jobber  a 
TTsefol  Factor 


THE   MIDDLE-MAN  AS  AN  ECONOMICAL 

ufacturers  entitled  to  it,  as  an  opinion  without  bias, 
based  on  fact. 

Mr.  Charles  A.  Moore,  president  of  Manning,  Max- 
well &  Moore,  in  an  address  delivered  at  the  convention 

of  the  National  Supply  and  Machinery 

Dealers*  Association,  some  time  since, 

said: 

"In  the  broader  sense  of  the  word, 

the  true  merchant  is  a  part  of  the  most 
conservative  banking  guild  of  the  world.  He  may  not 
sell  money  directly  as  does  the  national  bank,  but  in 
furnishing  funds  to  the  producing  manufacturer  for 
goods  purchased  from  him,  before  the  merchant  has  re- 
sold the  manufactured  product,  he  acts  as  a  true  bank- 
er, loaning  on  the  most  legitimate  security  in  the  world 
— the  needed  products  of  labor." 

The  jobber  is  properly  regarded  as  the  most  uni- 
versal servant  of  industrial  society.  His  functions  are 
both  varied  and  intricate,  blending  the  mechanical 
element  with  the  art  of  personal  service;  controlling 
a  flow  of  goods  involving  endless  detail  by  a  system, 
the  correct  formulation  of  which  is  a  masterpiece  of 
commercial  statesmanship.  Through  his  work  in  plac- 
ing supplies  of  goods  at  points  most  convenient  to  the 
dealer  and  consumer,  he  creates  a  desire  for  better 
goods  by  constant  display,  and  contributes  in  no  small 
degree  to  the  moral  uplift  and  betterment  of  the  com- 
munity. 

Through  large  purchases  by  the  jobber  the  busi- 
ness of  manufacturing  is  expedited  and  the  manufac- 
turer is  enabled  to  produce  his  goods  at  a  minimum 
cost.     This  effects  production  of  merchandise  at  a 

306 


MEDIUM    OF    DISTRIBUTION 

greater  profit  to  the  maker,  and  at  the  same  time  at  a 
lower  price  to  the  ultimate  consumer  than  would  other- 
wise be  possible.  Through  the  jobber  the  manufac- 
turer is  assured  a  constant  channel  of  distribution,  in- 
suring continuity  of  operation  of  his  plant,  so  long  as 
the  general  conditions  maintain  the  demand. 

In  the  case  of  manufacturers  of  seasonable  goods^ 
the  co-operation  of  the  jobber,  through  ordering  far 
in  advance  of  the  season,  makes  possible  the  operation 
of  their  plants  for  almost  the  entire  year. 

The  jobber's  task  is  to  furnish  the  goods  wanted 
at  the  time,  and  in  the  quantity  and  place  desired.  He, 
through  his  corps  of  expert  buyers,  each  skilled  in  his 
own  individual  line,  chooses  his  stock  from  the  infinite 
variety  of  manufactured  articles.  He  selects  with  great 
skill  and  care  the  goods  of  the  highest  quality  and  of 
the  sizes,  kinds  and  styles  best  suited  to  the  require- 
ments of  the  market  catered  to  in  quantities  which  com- 
mand the  lowest  prices. 

He  educates  his  customers  to  new  wants,  making 
known  to  them  new  goods,  and  showing  their  uses  and 
advantages  at  considerable  expense  and 
labor.  He  advises  them  in  their  pur- 
chases that  the  adjustment  of  the  want, 
the  goods  and  the  pocketbook  may  be  as 
perfect  as  possible. 

He  makes  the  buying  process  easy  and  agreeable 
for  his  customers.  He  protects  his  merchandise  from 
deterioration.  He  guarantees  it  to  be  as  represented, 
putting  his  reputation  behind  it. 

He  measures  it  out  in  the  quantity  convenient  for 
the  customer,  puts  a  fair  price  on  it,  and  delivers  it» 

307 


How  tlie  Jobber 

Serves  tbe 

Pablic 


k 

r 


Economy  and 
Convenience  of 
the  Senrice  of 
Distributor 


THE  MIDDLE-MAN  AS  AN  ECONOMICAL 

He  purchases  in  carloads  or  large  shipments  from  the 
various  factories,  securing  the  advantage  of  the  lowest 
through  freight  rate  to  his  city. 

In  selling  goods  again,  he  ships  these  goods  along 
in  the  same  invoice  with  those  of  many  other  makers, 

and  delivers  them  at  a  small  local  rate 
of  freight.  This  merging  enables  sup- 
plies to  be  purchased  more  frequently  at 
a  great  saving  of  money  invested  and 
freight  charges.  From  the  standpoint 
of  the  trade,  the  jobber  is  of  great  convenience  and 
affords  a  service  of  illimitable  economy  in  many  ways. 
Urgent  orders  can  be  filled  instantly  from  the  nearby 
jobber,  and  the  advantage  of  having  these  bases  of  sup- 
ply so  conveniently  located  in  every  section  of  the  coun- 
try cannot  be  overestimated.  It  is  unnecessary  for  the 
trade  to  tie  their  money  up  in  large  stocks,  for  the  job- 
ber, with  his  thousands  of  customers,  can  well  afford  to 
and  does  carry  a  full  and  complete  line  of  all  goods  re- 
quired in  his  territory. 

Among  others  who  have  written  on  the  subject, 
the  noted  political  economist,  Henry  George,  sets  forth 

at  some  length  the  economy  and  con- 
venience of  the  "middleman"  or  jobber, 
and  his  position  as  a  powerful  factor  in 
reducing  the  cost  of  distribution  and  the 
ultimate  price  to  the  consumer.  We  are 
pleased  to  hear  such  testimony  from  an  unbiased  stu- 
dent of  economic  conditions,  whose  sole  thought  is  to 
determine  the  method  of  distribution  which  is  of  great- 
est benefit  to  the  greatest  number  of  the  people. 

The  merchant  is  virtually  a  most  important  factor 

308 


Noted  PoUtical 
Economist 
TavorB 
Middleman 


Dealer 

Short  Sighted 

in  Overbuying 

From 

Manufacturer 


MEDIUM  OF  DISTRIBUTION 

in  cheapening  production,  ultimately  benefiting  the 

consumer. 

The  services  of  the  middleman  are  recognized  by 
railroads,  industrial  corporations  and  municipalities 
in  the  marketing  of  bond  issues.  Those  who  market 
such  bonds  are  able  to  do  so  at  far  greater  advantage 
than  would  the  makers  themselves  and  at  less  expense. 

Manufacturers  often  name  low  prices  to  dealers  to 
induce  overbuying,  and  frequently  lead  the  dealer  to 
purchase  the  goods  offered.  The  wis- 
dom of  such  a  purchase  is  doubtful,  and 
could  not  as  favorable  a  price  have  been 
secured  from  the  jobbers  on  a  smaller 
lot?  The  probabilities  are  that  it  could, 
and  there  would  have  been  no  desire  to  overload  the 
customer,  for  it  would  have  been  certain  to  react  on  the 
jobber.  As  for  the  manufacturer,  however,  his  visits 
are  infrequent,  and  such  matters  are  not  of  consequence 
to  him,  as  he  feels  that  with  the  purchase  of  a  large 
quantity  of  his  goods,  no  other  maker  will  be  able  to 
secure  a  footing. 

Again,  in  the  matter  of  credit.  When  in  need  of 
a  little  extra  time  the  trade  can  come  to  the  jobber 
who  is  well  acquainted  with  local  condi- 
tions and  will  be  sure  to  receive  the  aid 
desired.  The  distant  manufacturer  can- 
not be  reached  in  this  way,  and  he  is  less 
apt  to  grant  such  accommodations.  He 
only  sells  the  trade  once  or  twice  a  year;  his  bill  is 
large,  and  he  cannot  be  annoyed  and  is  not  accustomed 
to  such  requests,  feeling  that  his  bill  should  be  paid  at 
once,  regardless  of  local  conditions. 

309 


Jobber  Better 

From  a  Credit 

Standpoint 


THE  MIDDLE-MAN  AS  AN  ECONOMICAL 

The  merchant  buys  under  a  minimum  of  competi- 
tion,  considering  the  agreements  among  manufactur- 
ers, clubs,  pools,  etc.,  and  sells  against  free  and  open 
competition,  so  that  the  small  margin  of  net  profit  ob- 
tained by  him  is  in  nowise  unreasonable. 

The  majority  of  manufacturers  rely  upon  the  job- 
ber as  the  proper  agency  for  marketing  their  goods, 
and  realize  that  aside  from  any  sentiment  or  kindly 
feeling,  he  affords  the  most  economical,  easiest  and 
logical  method,  and  the  only  constant  channel  of  dis- 
tribution. 

Following  out  this  policy,  such  manufacturers 
safeguard  the  jobbers'  interest  closely,  and  the  most 

loyal  of  these  manufacturers  have  no 
price  whatever  for  other  trade.  They 
refer  all  who  apply  for  prices  to  their 
nearest  jobbers,  and  then  advise  their 
jobbing  customers  of  their  action. 
Other  manufacturers  who  do  not  choose  to  pursue 
this  plan  handle  the  matter  by  quoting  inquirers  a 
shade  higher  than  the  prices  asked  by  jobbers,  and 
thus,  for  the  purpose  of  trade,  turning  it  into  its  proper 
channel. 

There  is  another  class  of  manufacturers  who  pro- 
fess to  be  loyal  to  the  jobbers,  but  who  do  not  live  up  to 

their  announced  policy.  After  supply- 
ing the  needs  of  the  jobber  and  loudly 
proclaiming  themselves  as  his  consistent 
supporters,  they  surreptitiously  visit  his 
customers,  selling  them  the  same  goods 
at  little  or  no  advance  over  the  prices  charged  the  job- 
ber for  the  immense  quantity  purchased.    This  leaves 

310 


Manufacturers 
Should  Protect 
Jobbers* 
Interests 


The  Unfair 
Manufacturer 


MEDIUM  OF  DISTRIBUTION 

the  jobber  with  his  stock  on  hand  after  the  manufac- 
turer has  deprived  him  of  his  market.  The  sinister 
character  of  such  a  dishonorable  proceeding  as  this  is 
evident,  yet,  owing  to  the  lack  of  a  medium  through 
which  information  regarding  this  sort  of  competition 
could  be  transmitted  to  the  jobbing  trade,  the  practice 
has  been  permitted  to  continue. 

If,  then,  all  these  facts  regarding  the  jobber  are 
substantially  correct,  the  trade  becomes  the  legitimate 
customer  of  the  jobber,  and  by  every  law  of  equity  and 
justice  the  manufacturer  should  refrain  from  inter- 
fering with  the  jobber  in  the  enjoyment  of  his  rights. 


Ill 


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"Price  Maintenance 


jj 


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OCT  .8  ,936^<#^'^«^'  >-■ 

'n^I  9  1936-f  .S 

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